19 December 1989 Income Tax Severed Letter HBW 4125-UIC

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

We are writing in reply to your letter dated October 16, 1989, concerning your tax status in Canada. The following comments may be of some assistance:

• 1. The Canadian tax system is based on residency and not citizenship. There are basically two types of residents: factual residents and deemed residents.
• 2. Factual residence is a question of fact and is determined by weighing various factors, the principal ones for individuals of which are the place where an individual's permanent home is and where that individual's economic, social and family ties are where have enclosed Interpretation Bulletin IT-221R2 for your reference which explains our department's position regarding determination of an individual's residence status.
• 3. Deemed residence is determined by statute and most commonly comes into effect when an individual stays in Canada for 183 days or more.
• 4. Resident's of Canada (whether factual or deemed) are taxable on their world income. If their world income includes foreign sources that were subject to foreign income taxes, Canada will allow a foreign tax credit.
• 5. The convention between Canada and the United Kingdom for the avoidance of double taxation and the prevention of fiscal evasion (hereinafter referred to as the "treaty") is still in effect. Where provisions in the treaty are inconsistent with that of our domestic tax laws, the treaty provision will prevail.
• 6. In order to interpret the treaty, it must be determined in which country you are a resident for tax purposes. Due to the temporary nature of your time in Canada, you may be considered a resident of both Canada and the United Kingdom. You should contact the United Kingdom tax authorities to determine your status. Where you are a resident of both jurisdictions, Article 4 of the treaty provides "tie-breaker rules" that will determine, for purpose of interpreting the treaty, in which country you will be considered resident.
• 7. It is difficult for us to determine the residency status of an individual for purposes of the treaty without having all specific facts. However, the first tie-breaker rule will establish you as a resident of the country of which you have a permanent home available to you. Any form of home may be taken into account (house or apartment belonging to or rented by the individual, rented furnished room). If you are a factual resident for domestic law purposes (see comment #2), you are likely considered a resident of Canada for purposes of the treaty.
8. The treaty provisions that may be of some relevance are as follows:
• a) Where your are a resident of the United Kingdom for purposes of the treaty, Article 15 - paragraph 1 provides that your employment income earned in Canada may be taxed in Canada. In this regard, Article 21 of the treaty would ensure that the United Kingdom would allow a foreign tax credit in respect of Canadian taxes paid on the employment income to reduce or eliminate any U.K. taxes applicable to the same source. This would effectively eliminate any double taxation.
• b) Where you are a resident of Canada for purposes of the treaty, your employment income would be taxable in Canada (see comment #4). Likely there would be no tax liability in the United Kingdom on this amount. If there were tax liability in the United Kingdom, Article 21 would apply as described above.
• c) Regardless of your residence status per the treaty, Article 19 may come into effect. Where Article 19 applies, the payments received would be taxable only in the United Kingdom. This article only applies to payments received as a student, apprentice or business trainee for the purposes of your education, training or maintenance where your presence in Canada is solely for those purposes. As we are not familiar with the exact terms, conditions and reasons of your employment contract as a "Boursiere Postdoctoral", we cannot determine whether this Article applies in your situation.
• 9. Where you are liable for tax in Canada, the applicable federal tax rates progress as taxable Income increases. We have enclosed a 1988 General Tax Guide and Return for Residents of Quebec which will allow you to determine what your 1988 federal taxes would have been. The tax rates for 1990 will be relatively the same.
• 10. In addition to federal taxes, you would be liable for provincial taxes on the same income. The province of Quebec administers their own provincial Income Tax Act and will require a separate income tax return. As an approximation, the provincial tax liability is usually somewhere around 50% of the federal tax payable. For information on your Quebec tax liability, you should write to Revenu Quebec, Complex DesJardins, P.O. Box 3000, Montreal, Quebec, Canada, H5B 1A4.

We trust you will find this to your satisfaction. If we can be of further assistance, please do not hesitate to contact us.