10 August 2010 External T.I. 2010-0375241E5 - Canadian Forces personnel and police deduction

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: Would police officers working overseas in partnership with the RCMP qualify for the Canadian Forces personal and police deduction under 110(1)(f)(v)?

Position: A question of fact.

Reasons: To qualify for the Canadian Forces personnel and police deduction, a police officer must be serving on a qualifying mission. An employee of the Government of Canada or a provincial or municipal government would not qualify for the overseas employment tax credit.

XXXXXXXXXX
									2010-037524
									Andrea Boyle, CGA
August 10, 2010

Dear XXXXXXXXXX :

Re: Canadian Forces Personnel and Police Deduction

I am writing in reply to your email dated July 19, 2010, in which you asked whether certain police officers qualify for the Canadian Forces personal and police deduction. You have indicated that the employer is a municipal government and has police officers working overseas in partnership with the Royal Canadian Mounted Police (RCMP) in areas such as Haiti.

You have also indicated that you have been completing the T4 Statement of Remuneration Paid (T4) by entering amounts in boxes 72 and 73 assuming that the police officers would qualify for the overseas employment tax credit. You are asking if you should instead be entering amounts in box 43 so that the officers would qualify for the Canadian Forces personnel and police deduction.

The particular situation outlined in your email appears to relate to a factual one, involving specific taxpayers. 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 an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. We are, however, prepared to offer the following general comments, which may be of assistance.

All statutory references in this letter are references to the provisions of the Income Tax Act, R.S.C. 1985 (5th supp.) c. 1, as amended ("Act").

Members of the Canadian Forces and Canadian police officers are entitled to tax relief under subparagraph 110(1)(f)(v) of the Act with respect to employment income and allowances received while serving on certain missions outside Canada. The deduction is restricted to members of the Canadian Forces and police officers serving on such missions. This tax relief is in addition to any non-taxable allowances that may be received by an individual while serving on such missions.

Subparagraph 110(1)(f)(v) is effective for 2004 and later taxation years and provides a deduction against employment income (including taxable allowances) earned by Canadian Forces members and police officers deployed outside Canada on high risk and certain moderate risk missions. The deduction may be claimed with respect to earnings that have been included in calculating income, up to the maximum rate of pay earned by non-commissioned members of the Canadian Forces that applied on that mission.

It should be noted that while police officers of the various police forces in Canada qualify for the deduction, civilian members of a police force for Canada are not eligible.

In order to qualify for the deduction, the Canadian Forces member or police officer must be serving on a:

a) deployed operational mission assessed for risk allowance pay at level 3 or higher (i.e., high risk missions). This would include, for example, certain missions to Afghanistan, Sudan, Haiti and others;

b) prescribed mission assessed for risk allowance pay at level 2 (i.e., moderate risk missions, discussed further below); and

c) any other prescribed mission - there are currently no missions prescribed under this category.

In the first instance, the Department of National Defence determines which missions are "deployed operational missions" as well as the risk allowance pay level applicable to each mission. In the second instance, an individual deployed on a moderate risk mission (risk allowance at level 2) will only be entitled to the deduction if the mission is prescribed under section 7500 of the Income Tax Regulations.

Whether a specific police officer working overseas is serving on a mission which would qualify for the deduction available under subparagraph 110(1)(f)(v) is a question of fact to be determined in each particular case. If an individual qualifies for the deduction against employment income, an exception from withholding income taxes is found under subsection 102(6) of the Income Tax Regulations. Therefore, in the event that you determine that a police officer is entitled to the Canadian Forces personnel & police deduction, the deductible amount should be entered into box 43 of the T4 and the amount exempted from withholding tax.

By entering amounts in boxes 72 and 73 of the T4s you have been reporting that the police officers qualify for the overseas employment tax credit. A qualifying activity for the purpose of this credit refers to the qualifying activity of the specified employer and not that of the employee. Qualifying activities include the exploration for or the exploitation of petroleum, natural gas, minerals or similar resources; a construction, installation, agricultural or engineering activity; or any prescribed activity (which is defined in section 6000 of the Income Tax Regulations as an activity performed under contract with the United Nations). Additionally, as noted in paragraph 15 of IT-497R4 Overseas Employment Tax Credit:

Although the Government of Canada or a provincial or municipal government is considered to be a specified employer, employment income from that source generally does not qualify for the purposes of section 122.3, because a body politic or government would not usually carry on business outside Canada under a contract.

Under the given circumstances, it seems that the police officers in your employ do not qualify for the overseas employment tax credit and, in which case, amounts should not be entered into boxes 72 and 73 of their T4s.

We trust that these comments will be of assistance.

Yours truly,

Randy Hewlett
Manager
for Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch