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: Whether an employee who works and lives in a prescribed northern zone in employer provided accommodation for a schedule of fourteen days on and fourteen days off and maintains a principal residence outside any prescribed northern zone, would be considered to have resided in a prescribed northern zone for a period of more than six consecutive months for purposes of the northern residents deduction.
Position: While a question of fact, it appears that in this case the temporary period of residence in the prescribed northern zone is interrupted and as such the particular individual would not qualify for the deduction.
Reasons: The law.
XXXXXXXXXX 2010-036352
Michael Cooke, C.A.
April 26, 2010
Dear XXXXXXXXXX :
Re: Northern Residents Deduction - Residency Requirement
This is in response to your letter dated March 28, 2010, wherein you asked whether you qualify for the deduction of the basic residency amount and the additional residency amount in respect of your employment in XXXXXXXXXX (the "Work Location").
In your letter you indicate that you share an employer-provided house with two other co-workers who do not claim the northern residents deduction. We understand that you typically work for fourteen days and then return home to XXXXXXXXXX for fourteen days, although you also indicate that because you work some overtime you may not always return home.
Our Comments:
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of a request for an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, Advanced Income Tax Rulings, dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the internet at http://www.cra-arc.gc.ca. Where the particular transactions are complete, the inquiry should be addressed to the relevant tax services office, a list of which is available on the "Contact Us" page of the CRA website. Although we cannot comment on your specific situation, we are prepared to provide the following comments in respect of the issues that you raised. Please note, however, that these comments are of a general nature only and are not binding on the CRA.
The northern residents deductions consist of a deduction in respect of certain taxable employer-paid travel benefits pursuant to paragraph 110.7(1)(a) of the Income Tax Act (the "Act") (which we are not addressing) and a deduction in respect of living costs pursuant to paragraph 110.7(1)(b) of the Act (the "residency deduction"). These deductions are available where the taxpayer resides in one or more prescribed zones throughout a period of at least 6 consecutive months commencing or ending in the year (referred to as the "qualifying period"). For these purposes the prescribed zones are a "prescribed northern zone" or "prescribed intermediate zone" as defined in section 7303.1 of the Income Tax Regulations. We note that although your Work Location is located in a prescribed northern zone (Zone A), your principal place of residence is not located in any prescribed zone.
The residency deduction is limited to a maximum of 20% of the individual's income for the year and is comprised of two parts. The basic residency amount is a dollar amount for each day in a qualifying period in a year that the individual lives in a particular prescribed zone multiplied by a specified percentage (100% for a prescribed northern zone and 50% for a prescribed intermediate zone). The additional residency amount provides an additional daily amount multiplied by a specified percentage for each such day if the individual maintained and lived in a self-contained domestic establishment in the particular prescribed zone during that time.
As noted on Form T2222, Northern Residents Deductions, the CRA considers an employee to have lived in and maintained a dwelling even if the employer does not charge rent and pays all the utility, maintenance, and other costs related to the particular dwelling. A self-contained domestic establishment is defined in subsection 248(1) of the Act to mean a dwelling-house, apartment or other similar place of residence in which a person as a general rule sleeps or eats. This means that the expression does not include a bunkhouse, dormitory, hotel room, or room in a boarding house. Each taxpayer living in the dwelling can claim the basic residency amount as a deduction on his or her income tax return. However, if more than one person claims the basic residency amount for a particular period and dwelling, no one in that household can claim the additional residency amount for that period and dwelling. Whether or not an individual would be entitled to a residency deduction under subsection 110.7(1) of the Act can only be determined after a review of all of the relevant facts of the particular situation.
As discussed in the instructions on Form T2222, in determining whether an individual has lived in a prescribed zone for the qualifying period, in general, where an employee resides in a prescribed zone on a permanent basis, the continuity of residency for a qualifying period is not considered to be broken or interrupted by short-term absences, such as vacations. However, where an individual resides in a prescribed zone on a temporary basis and maintains a principal residence outside a prescribed zone, while short or infrequent absences from the prescribed zone might not cause us to consider that the continuity of residency for a qualifying period has been broken or interrupted, it is our view that regular absences from the prescribed zone will result in such a break or interruption. Accordingly, where an employee returns to his or her principal residence outside of a prescribed zone on a fairly frequent basis, such as appears to be the case in your situation, then the qualifying period requirement will not be met.
Finally, we note that the amount of the northern residents deduction must be reduced if the individual is receiving non-taxable board and lodging benefits or allowances in connection with employment at a special worksite. This requirement is described on Form T2222 and is discussed in more detail in paragraph 20 of Interpretation Bulletin IT-91R4, "Employment at Special Work Sites or Remote Work Locations."
We trust our comments will be of assistance to you.
Yours truly,
Renée Shields
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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