7 August 1990 Income Tax Severed Letter - Tax treatment of an individual on overseas teaching assignments

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 Sir:

We are writing in response to your letter dated March 7, 1990 in which you requested technical interpretations concerning the tax treatment of XXX on overseas teaching assignments.

Relevant Facts

The relevant facts for a typical situation may be summarized as follows:

• 1. XXX
• 2. XXX
• 3. XXX
• 4. XXX
• 5. XXX

Residence

XXX It is a requestion of fact which can only be determined following a review of all relevant facts of a given situation whether an individual would be considered resident in Canada for income tax purposes. The Department's position concerning the determination of an individual's residence status for income tax purposes is explained in Interpretation Bulletin. The facts outlined above would tend, in our view, to XXX

Moving Expenses

You are of the opinion that the moving expenses would not be deductible under subsection 62(1) of the Act. Your opinion is based upon the fact that the employment and move concern a foreign country therefore not satisfying the conditions set forth within subsection 62(1) of the Act. You are also of the opinion that the payment of relocation costs by the foreign employer will constitute a taxable benefit pursuant to paragraphs 6(1)(a) and (b) of the Act.

We are in agreement with your position on the non-deductibility of moving expenses under subsection 62(1) of the Act. With regards to the reimbursement of relocation costs by an employer, the Department's general position is stated in paragraph 35 of Interpretation Bulletinwherein, it states, “where an employer reimburses an employee for the expenses incurred by the latter in moving the employee and the employee's family and household effects either . . . or because of having accepted employment at a place other than where the former home was located, this reimbursement is not considered as conferring a taxable benefit on the employee”.

Government Grants

XXX

We regret that we are unable to provide a definitive opinion in respect of the classification of the payment from the XXX as we have not been provided with sufficient information. Any meaningful comments could only be provided following a review of all of the details concerning the program, including any agreements to be signed by the XXX. However, Interpretation Bulletintitled “Scholarships, Fellowships, Bursaries, Prizes and Research Grants” and the Special Release thereto may provide you with the information that you require regarding the classification of the payments.

Foreign Income Tax Credits

The XXX may be required to pay income taxes on the employment income earned in the foreign country.

You are of the opinion that the XXX would be eligible to deduct a foreign tax credit in the calculation of income taxes payable under section 126 of the Act or the foreign tax paid may be deducted in the calculation of income under subsection 20(12) of the Act.

We are in agreement with your position on the XXX eligibility to claim a foreign tax credit in computing his or her tax otherwise payable for the year under Part I of the Act pursuant to subsection 126(1) of the Act. In regards to the eligibility for a deduction under subsection 20(12) of the Act, it is our view that the XXX would not be eligible for such a deduction as stated in paragraph 9 of Interpretation Bulletinwherein, it states “Non-business-income taxes paid in respect of employment income are not deductible under subsection 20(12) since subsection 8(2) restricts employment income deductions to those allowed under section 8”. XXX

It is your view that the fees earned under such a contract constitute self-employment business income rather than employment income and, as such, expenses related directly to the fees earned would be deductible in the computation of net income for tax purposes. If the income qualifies as self-employment income then the provisions of section 122.3 of the Act would not apply to reduce the XXX income taxes.

In order to determine whether the fees earned under a contract would constitute self-employment or employment income, it is essential to review all of the facts in order to categorize the fees for income tax purposes. We regret that we cannot provide you with any meaningful comments without a review of all of the relevant facts. In any case, the XXX would not qualify for the deduction from income taxes pursuant to section 122.3 of the Act because the XXX would not be carrying on business or undertaking contracts with respect to one of the activities described in clauses 122.3(1)(b)(A), (B) or (C) in a foreign country therefore not satisfying the conditions set forth within paragraph 122.3(1)(b) of the Act.

Travelling Allowances

XXX

It is your view that the travel allowance would be exempt from tax under subparagraph 6(1)(b)(vii) of the Act.

In our opinion the allowance for travelling expenses would not qualify for exemption under subparagraph 6(1)(b)(vii) of the Act since the allowance must be paid for travel in the performance of the duties of his office or employment. Travel expenses incurred in connection with the XXX would, in our view, not satisfy this condition.

Other Issues

Our responses to your queries have not taken into account the effects of any tax treaty that may exist between Canada and the particular foreign country in question. The provisions of any treaty would have to be reviewed in order to determine their effect on our responses to your various queries. Our general comments herein are provided in accordance with the practice referred to in paragraph 24 of Information Circular 70-6R.