7 August 1990 Income Tax Severed Letter - Application of subsections 156(1) and 153(2) to a hypothetical situation

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.

Dear Sirs:

Re: Subsections 156(1) and 153(2) of the Income Tax Act (Canada) (the “Act”)

We are writing in response to your letter dated February 26, 1990 in which you requested our opinion on the application of subsections 156(1) and 153(2) of the Act to the following hypothetical situation.

Facts

• 1. A Canadian citizen resident in Canada within the meaning of subsection 250(1) of the Act earns 100% of his employment income in the United States. All of the employment duties are exercised in the United States.
• 2. The United States employer withholds the required U.S. deductions from his employment income.
• 3. The individual has no other source of income in the year.

You have identified three different instalment bases which may or may not apply to the above situation:

• 1. The quarterly instalments should be based upon the total income earned by the resident individual.
• 2. The quarterly instalments should be based upon the net estimated income taxes after deducting the foreign tax credit.
• 3. There are no quarterly instalments since the base is nil due to the fact that the income is subject to U.S. source deductions.

You wish to determine which of the above instalment bases should be used in the determination of the amount of quarterly tax instalments required under subsection 156(1) of the Act.

It is our view that the resident individual would be subject to tax in Canada on his world income pursuant to subsection 2(1) of the Act. Employment income earned in the U.S. by an individual resident in Canada would not, by virtue of paragraph 1 of Article XV of the Canada-U.S. Income Tax Convention (1980) (the “Treaty), be exempt from taxation in Canada. The employment income would be included in income under the provisions of subsection 5(1) of the Act and the individual would then be eligible to claim a foreign tax credit (Foreign Tax Credit) under section 126 of the Act for any taxes paid to the United States government which may also tax the employment income under paragraph 2 of Article XV of the Treaty. The Foreign Tax Credit reduces the Canadian tax otherwise payable under Part I of the Act by a taxpayer resident in Canada.

Subject to the exemption provided within section 156.1 of the Act, it is our view that the instalment base based upon an individual's estimated taxes owing under Part I of the Act after deducting the Foreign Tax Credit would meet the requirements of subparagraphs 156(1)(a)(i) of the Act. If the individual were to pay instalments based upon his or her total income (your first alternative), the individual would pay quarterly instalments which are in excess of those required by paragraph 156(1)(a). Your third alternative would not apply since the provisions of subsection 153(2) of the Act would not be satisfied. Although the individual's income is subject to U.S. source deductions such amounts are not deducted or withheld under section 153 of the Act as is required by subsection 153(2) of the Act to exempt the individual from making quarterly instalments.

The foregoing comments represent our general views with respect to the subject matter of your letter. The facts of a particular situation may lead to a different conclusion. The foregoing opinions are not rulings and, in accordance with the guideline set out in Information Circular 70-6R dated December 18, 1978 are not binding on the Department.