12 May 2010 External T.I. 2010-0360801E5 - Northern residents deductions

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 a person qualifies for the northern residents deductions where he lives in a prescribed zone but also maintains a family residence that is not in a prescribed zone.

Position: General comments only could be provided. It is a question of fact whether he has resided in the prescribed zone for six consecutive months.

Reasons: Where a taxpayer is residing in a prescribed zone but also has a place of residence that is not in a prescribed zone, the taxpayer's ability to claim the northern residents deductions will depend on the number and length of absences from the prescribed zone and the purpose of such absences.

2010-036080
XXXXXXXXXX Rita Ferguson
519-645-5261
May 12, 2010

Dear XXXXXXXXXX :

Re: Northern residents deduction

This is in response to your letter of March 18, 2010 inquiring about the residency requirements to qualify for the northern residents deductions.

You have described a situation in which a person (the "Employee") has, during the year, started working and living in a prescribed northern zone. Depending on his schedule, whenever possible, the Employee returns home (to a location not in a prescribed zone) to visit his spouse and family.

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 travel benefits in paragraph 110.7(1)(a) of the Income Tax Act (the "Act") and a deduction in respect of living costs in paragraph 110.7(1)(b). A taxpayer may qualify for the deductions if he or she resides in one or more prescribed zones, throughout a period of at least six 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 Regulation 7303.1 of the Act. 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 prescribed zone multiplied by a specified percentage (100% for a prescribed northern 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 prescribed zone during that time. Whether an individual meets all the particular conditions of subsection 110.7(1) of the Act for a particular taxation year can only be determined after a review of all of the relevant facts.

You have specifically asked about the residency requirement. As noted above, a taxpayer must reside in a prescribed zone for six full consecutive months (not just parts of calendar months) to have a qualifying period for purposes of the northern residents deduction. It frequently happens that a taxpayer resides in a prescribed zone for employment purposes but also has a principal place of residence that is not in a prescribed zone. In such a situation, the fulfillment of the qualifying period will depend on the number and length of absences from the prescribed zone and the purpose of such absences. There is no definitive formula for this determination. Generally speaking, short or infrequent absences from a prescribed zone will not cause us to consider that the consecutive six month period has been interrupted. However, if the taxpayer returns to his or her principal place of residence outside of a prescribed zone on a fairly frequent basis, for example, on most weekends, or at the end of most normal working periods, then the consecutive six month residency requirement will not be met.

With respect to your question regarding the Ontario property tax credit, as this is a provincial credit, you should direct your enquiry to your local Ontario Ministry of Finance Tax Office. The following general information, relevant to your question, is from the Ontario Ministry of Revenue Information Bulletin, "Information about the Property and Sales Tax Credits" :

Although you may have shown your marital status on your tax return as married or living common-law, if you and your spouse or common-law partner occupied separate principal residences in Ontario for part or all of the year for medical, educational, or business reasons, we will consider you to be involuntarily separated during that period for purposes of the property and sales tax credits.

As a result, each of you may apply for a property tax credit by including the following in your tax credit claim:

• a share of the property tax or rent for the part of the year when you lived together
• your own property tax or rent paid after the separation.

For the period before separation, the property tax or rent paid may be divided any way you choose. However, the total amount of rent or property tax claimed, when combined, may not be more than the actual rent or property tax paid for the residence before separation.

This Information Bulletin and other Ontario Ministry of Revenue publications can be accessed on the internet at http://www.rev.gov.on.ca.

We trust that these comments have been of assistance.

Yours truly,

Renée Shields
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch