19 October 1999 External T.I. 9926065 - SPECIAL WORK SITE - NON-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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: Whether non-residents are eligible for subsection 6(6) exemption.

Position: General comments provided.

Reasons: Must be determined on a case by case basis.

Investment Servicing
Investments Partnerships Canada
Industry Canada 5-992606
235 Queen Street, Room 569F David Shugar
Ottawa, Ontario
K1A 0H5

Attention: Robert Tjoa

October 19, 1999

Dear Mr. Tjoa:

Re: Exemption Under Subsection 6(6) of the Income Tax Act (the "Act")

We are responding to your correspondence of September 22, 1999, concerning various taxation issues raised by XXXXXXXXXX (the "Company"). As you requested, we will only be addressing the issues concerning the application of subsection 6(6) of the Act to employees of the Company who are normally not present in Canada for a period beyond 8 to 12 months.

Our Comments

The particular circumstances in your letter on which you have asked for our views appears to be a factual situation involving a specific taxpayer. As explained in Information Circular 70-6R3, it is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. Should your situation involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate district taxation office for their views. However, we are prepared to offer the following general comments which may be of some assistance to you.

A resident of Canada would be subject to tax on, among other things, his income from employment as computed under the Act. Where applicable, paragraph 6(6)(a) of the Act would be taken into consideration in this computation. See the comments in the paragraph below regarding the application of paragraph 6(6)(a) of the Act.

In your letter you state that the employees of the Company would not be present in Canada beyond 8 to 12 months. It is a question of fact whether these employees are considered to be resident in Canada. Residency is determined on a year by year basis. In determining the residency status of an individual for a particular year, the facts and circumstances of the individual for that year should be examined thoroughly. If an individual is determined to be both a resident of Canada (either factual or deemed resident) in a particular year and a resident of another country in that year under the tax law of that country, he will be deemed not to be a resident of Canada for Canadian income tax purposes if he is determined to be a resident of that country for purposes of the income tax treaty that Canada has with that country.

Under subsection 2(3) of the Act, an individual employed in Canada, who is not resident in Canada, is subject to tax on his taxable income earned in Canada for the year. Subsection 115(1) of the Act provides that for an employed individual who is not resident in Canada, the aggregate of his salary, wages and other remuneration, including benefits and allowances, from duties of an office and employment performed in Canada is to be included in his income for the year for the purposes of determining his taxable income earned in Canada. Section 6 of the Act, however, further provides that certain benefits and allowances, normally taxable, may be excluded from income if the criteria governing such exclusions are met. One such excluding provision is subsection 6(6) of the Act which provides that where an individual is employed at a special work site performing duties of a temporary nature, the value of free board and lodging, and transportation to and from the job is not required to be included in income.

Paragraph 6(6)(a) of the Act provides that there shall not be included any amount in a taxpayer's income that is the value of, or an allowance (not in excess of a reasonable amount) in respect of expenses incurred by the taxpayer for, board and lodging at:

(i) a special work site,
(being a location at which the duties performed by the taxpayer were of a temporary nature, if the taxpayer maintained at another location a self contained domestic establishment as the taxpayer's principal place of residence which is available to that individual throughout the period, not rented to any other person, and a sufficient distance away that the employee could not be expected to return home on a daily basis)
or,

(ii) a remote work location

(being a location at which, by virtue of its remoteness from any established community, the taxpayer could not reasonably be expected to establish a self-contained domestic establishment).

The period during which the taxpayer was required to be away from the taxpayer's principal place of residence, or to be at the special work site or remote location, must not be less than 36 hours for the exclusion under paragraph 6(6)(a) of the Act to apply.

The Department's position as to the interpretation of the word "temporary" in this context is reflected in paragraph 6 of Interpretation Bulletin IT-91R4 which describes the general rule that employment for a period beyond two years would not normally be considered temporary. Two years is considered to be a reasonable guideline for employment that purports to be a temporary assignment. A period of employment beyond that takes on the characteristics of a long term or permanent assignment.

One of the requirements of paragraph 6(6)(a) of the Act is that the individual maintains, at another location, a self contained domestic establishment as a principal place of residence. That residence must be available to the employee throughout the period, not rented to any other person, and a sufficient distance away that the employee could not be expected to return home on a daily basis. Whether or not an individual maintains a self-contained domestic establishment and otherwise meets the provisions of subparagraph 6(6)(a)(i) of the Act is a question of fact and would have to be determined on an individual case basis.

The reasonableness of an allowance is a question of fact. It must be related to the amount of actual expenses an individual is likely to incur in respect of the expenses for which the allowance is provided rather than being based on other factors such as levels of salary. Therefore, an allowance which is expected to cover expenses in addition to board, lodging and transportation would not be exempt by reason of subsection 6(6) of the Act.

The wording of subsection 6(6) of the Act does not preclude an employee from being sent to, or brought in from, another part of the world for the subsection to apply. In our view, an employee of the Company may be eligible to claim the exemption under subsection 6(6) of the Act regardless of his residency, provided the employee meets the conditions stated in the subsection, which can only be determined on a case by case basis. Therefore, we cannot provide you with a blanket affirmation that the employees will qualify for the exemption.

We trust our comments will be of assistance to you.

Yours truly,

Roberta Albert, CA
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

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