29 July 2011 External T.I. 2011-0415151E5 - Non-Resident Locally Engaged Employees

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: Is a non-resident locally engaged employee subject to Canadian income tax on her employment income from a Canadian consulate?

Position: Yes.

Reasons: Paragraphs 115(2)(c) and 115(2)(d) deem the LEE to be employed in Canada.

XXXXXXXXXX 								Shelley Lewis
									(613) 957-2118
									2011-041515
July 29, 2011

Dear XXXXXXXXXX :

Re: Locally Engaged Employees

We are writing in reply to your letter of July 8, 2011 wherein you inquired why you were subject to Canadian income tax from the employment income you received while working for a Canadian Consulate in the United States.

In your letter you noted that you are a Canadian and US citizen and had been living in the US for over XXXXXXXXXX years before you began working for the Canadian Consulate. In your opinion, subsection 250(1) of the Income Tax Act (the "Act") does not apply to deem you to be a resident of Canada for the relevant years because you severed all ties with Canada in XXXXXXXXXX and did not sojourn in Canada for more than 183 days in any of the relevant years.

Our Comments

We agree that someone who has not sojourned in Canada for 183 days in a given year and has broken all residential ties with Canada in a year prior to beginning work for a Canadian Consulate should not be considered a Canadian resident under subsection 250(1) of the Act. However, locally engaged employees (LEEs), that are non residents of Canada, are deemed to be employed in Canada by virtue of the application of paragraphs 115(2)(c) and 115(2)(d). As such the remuneration paid to LEEs who are non-resident persons is subject to tax in Canada pursuant to paragraph 115(2)(c) and subparagraph 115(1)(a)(v) of the Act.

Such remuneration is also subject to federal surtax under subsection 120(1) of the Act rather than provincial tax because the remuneration is not income that is earned in a province. The remuneration is not considered to be income earned in a province because there are no services performed in a province and the LEEs do not reside in a province at the end of the taxation year.

Although LEEs are subject to Canadian taxes on employment income received from a Canadian Consulate, LEEs are exempt from federal tax in the US by virtue of Article XIX of the Convention.

We trust these comments are of assistance.

Yours truly,

Shelley Lewis
for Director
International and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch