7 September 1990 Income Tax Severed Letter - Meaning of “borne by an employer” of the other contracting state in applying subparagraph 2(b) of Article XV of the Canada-United States Income Tax Convention

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.

Meaning of "Borne by an Employer" of the Other Contracting State in Applying Subparagraph 2(b) of Article XV of the Canada-United States Income Tax Convention, (1980) (the "Convention")

Remuneration derived by a resident of a contracting state in respect of an employment exercised in the other contracting state will not be subject to taxation in the latter state if, among other conditions:

• • The recipient is present in the other contracting state for less than 183 days in a year;

and

• • The remuneration is not borne by an employer who is resident of that other state or ...

In applying the exception provided by subparagraph 2(b) of Article XV of the Convention, what are currently the views of Revenue Canada, Taxation and of the Internal Revenue Service on the interpretation to be given to the word "employer"? In other words, is an employer/employee relationship determined to exist primarily by relying on the criterion of the contractual relation that may exist between an individual and his employer (in the contractual sense) or, alternatively, by relying on the doctrine of the master/servant relationship, recently confirmed, for Canadian domestic tax purposes, through the criteria developed in the Wiebe Door case?

Revenue Canada's Position

The decision of the Federal Court of Appeal in Wiebe Door Services Ltd. v. The Minister of National Revenue [[1986] 2 C.T.C. 200] 87 DTC 5025 dealt with whether certain individuals were employees or independent contractors and held that such determination was essentially a question of fact to be made after weighing all of the relevant factors. Article XV of the Convention of course only applies in respect of employment income and thus has no application to the income of an independent contractor which may, however, be dealt with by Article XIV or Article VII of the Convention.

Whether or not a resident of Canada is an "employer" for purposes of subparagraph 2(b) of Article XV of the Convention is essentially a question of fact. If an individual comes to Canada and exercises his duties for a Canadian company and the costs, whether directly or indirectly, are borne by the Canadian company, the presumption is that the Canadian company is an employer and the individual is taxed in Canada unless there are other facts which dictate the contrary. The individual may be paid by a United States company, but when he is the Canadian company may be an employer of the individual for purposes of this provision of the Convention.

Prepared by: G. Arsenault, September 6, 1990