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.
Dear Sirs:
This is in reply to your letter dated February 15, 1980 regarding a U.S. citizen who commutes daily to his place of employment at a Canadian subsidiary ("CANCO") of its U.S. parent ("USCO").
The individual and his family reside in the U.S. and he remains on USCO's payroll. CANCO reimburses him for the individual's payroll cost to USCO. The reimbursement contains no profit element. The payroll costs include salary, U.S. pension contributions by USCO on the employee's behalf and certain other benefits.
You indicated that the individual will file a Canadian T1 and pay income taxes on his Canadian employment income. USCO will withhold the required amount of tax and will forward it to the Taxation Data Centre by the fifteenth day of the following month using form PD 7AR.
Provided that the reimbursement is reasonable and is not on account of capital, it is our opinion that:
- (i) the total reimbursement, including the portion for U.S. pension costs is deductible by CANCO as an expense incurred for the purpose of gaining or producing income from the business and,
- (ii) for the purposes of paragraph 212(1)(a) of the Act will not constitute a Management or administration fee or charge by virtue of the exempting provisions of paragraph 212(4)(b) of the Act.
However, it should be noted that CANCO is nevertheless required to withhold 15% of the reimbursement when it is paid to USCO by virtue of Regulation 105(1). It is our understanding that the Department may waive this withholding requirement, particularly where the parties are not dealing at arm's length. In this connection we suggest that you discuss the matter with the appropriate District Taxation Office.
We would also refer you to Information Circular 77-16.
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© Her Majesty the Queen in Right of Canada, 1980
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© Sa Majesté la Reine du Chef du Canada, 1980
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