9 January 2012 Internal T.I. 2011-0424881I7 - Deemed Resident

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.

Principal Issues: If a person who was deemed resident in Canada by former paragraph 250(1)(e) in a taxation year when they accepted employment as described in the post-amble to paragraph 250(1)(c), would that person continue to be deemed to be resident in Canada under paragraph 250(1)(c) in every taxation year after the repeal of paragraph 250(1)(e).

Position: Yes.

Reasons:	The post-amble of paragraph 250(1)(c) does not distinguish between deemed and factual residents.
		

							January 9, 2012

Income Tax Rulings Directorate		Income Tax Rulings
Director of the International Division	Directorate
							Shelley Helmer LL.B.
Attention: Randy Hewlett			(613) 957-2118

							2011-042488

Deemed Resident

You inquired whether a person who was deemed resident in Canada by former paragraph 250(1)(e) of the Income Tax Act (the "Act") in a taxation year when they accepted employment as described in the post-amble to paragraph 250(1)(c) of the Act, would continue to be deemed to be resident in Canada under paragraph 250(1)(c) in every taxation year after the repeal of paragraph 250(1)(e).

In your view, the taxpayer would technically be deemed to be resident in Canada pursuant paragraph 250(1)(c) because the taxpayer was a deemed resident of Canada (by virtue of paragraph 250(1)(e)) immediately prior to the appointment or employment.

Facts

• A taxpayer (the "Taxpayer") leaves Canada in 1994 with the Taxpayer's spouse ("Exempt Spouse") who works for the Canadian government in XXXXXXXXXX ;
• the Taxpayer becomes a factual non-resident of Canada from the day she leaves, but is deemed by paragraph 250(1)(e) to be a resident of Canada;
• the Taxpayer finds employment, as described in subparagraph 250(1)(c)(i) or (ii), in 1997; and
• paragraph 250(1)(e) is repealed effective February 23, 1998.

Our Comments

We agree with your conclusion that paragraph 250(1)(c) would apply to the Taxpayer; however we have the following observations. While paragraph 250(1)(e) has been repealed the coming into force rules provide that it generally continues to deem a taxpayer to be resident in Canada unless the taxpayer elects in writing to have the repeal of (e) apply after February 23, 1998.

It is likely many individuals in other circumstances would not want to elect to have the repeal of paragraph 250(1)(e) apply because of the deemed disposition rules in paragraph 128.1(4)(b) of the Act.

In addition, it is our understanding that when paragraph 250(1)(e) was repealed, paragraph 250(1)(g) of the Act was added. The effect of paragraph 250(1)(g) is to ensure that a person related to a resident is deemed to be a resident unless that person is taxable in the foreign country. The overall effect of these changes is to shift the deeming factor from simply a spousal relationship to a two tier test: the person is related to an individual resident in Canada and because of that relationship is exempt from taxation in a foreign country in respect income from any source under an agreement or convention that has the force of law in Canada. In the present situation, had the Taxpayer not been subject to paragraph 250(1)(c) (assuming the Taxpayer was still married on February 22, 1998 to the Exempt Spouse) an election by the Taxpayer, to have the repeal of paragraph 250(1)(e) to apply may not have had any practical effect if the Taxpayer would have been exempt from tax in the foreign country because of her relationship to her spouse. In such case, the Taxpayer would have been deemed resident in Canada pursuant to paragraph 250(1)(g) of the Act.

We trust these comments are of assistance.

Olli Laurikainen C.A.
Manager
International Section II
Income Tax Rulings Directorate