13 June 1975 Income Tax Severed Letter

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.

XXXX

June 13, 1975

Revenue Canada, Taxation Technical Interpretations Division Cartier Square Ottawa, Ontario

Attention: C.W. Mavor, Esq.

Re : Subsection 115(2)

Dear Sir:

The purpose of this letter is to seek clarification as to the application of subsection 115(2) of the Income Tax Act (here- in "the Act") with regard to non-residents of Canada who are employed on board vessels which pass through Canadian waters at intervals during the year. We understand that this matter has been raised in the past but we would submit that the issue merits further scrutiny in light of the potentially broad ambit of subsection 115(2).

Assume the following facts:

(a) a U.K. resident who had at some time in the past been resident in Canada, is employed by a Canadian resident corporation to work on board one or other of the corporation's tankers;

(b) the tankers in question are of non-Canadian registry;

(c) such a U.K. resident is either married with a family which resides in the U.K. or, being a bachelor, is perhaps more transient although lodgings are maintained in the U.K. but not in Canada;

(d) the particular tanker on which such a person is employed normally passes through Canadian, international and foreign waters in the course of a year;

(e) remuneration is paid by the Canadian resident corporation; and

(f) in any one year, the tanker's presence in Canadian waters may vary considerably and in- deed, it is theoretically possible that in a particular year the vessel may not be in Can- adian waters at all.

Based on the foregoing facts, it would appear that such a non-resident person comes within the provisions of paragraph 115(2)(c) in that in a previous year he ceased to he resident in Can- ada and was, in a given year, in receipt of remuneration in respect of employment that was paid to him by a Canadian resident person.

However, there is significant doubt as to whether such a person is taxable in Canada owing to the exclusion set out in sub- paragraph 115 (2) (e) (i). In addition, it is unclear whether it is with- in the purpose of subsection 115(2) to impose Canadian tax in respect of the remuneration of such an individual and, moreover, this result would seem to be a singular departure from what would normally be the scope of Canadian taxation.

Subparagraph 115(2)(e)(i) provides for the first of four amounts the aggregate of which are brought within a non-resident person's taxable income earned in Canada due to subparagraph 115(1)(a)(v). As set out in subparagraph 115(2)(e)(i), this amount is:

"(i) any remuneration in respect of an office or employment that was paid to him directly or indirectly by a person resident in Canada and was received by the non-resident person in the year, except to the extent that such remuneration is attributable to the duties of an office or employment performed by him in a country other than Canada and

(A) is subject to an income or profits tax imposed by the government of a country other than Canada, or

(B) is paid in connection with the selling of property, the negotiation of contracts or the rendering of services for his empl- oyer, or a foreign affiliate of his employer, or any other person with whom his employer does not deal at arm's length, in the ordin- ary course of a business carried on by his employer, that foreign affiliate or that person,"

While it appears that either clause 115(2)(e)(i)(A) or (B) would normally be applicable, the issue is whether the duties of the office or employment are performed "in a country other than Canada". Where the vessel is in foreign waters, there can be no doubt that this is the case.

Where the vessel is in Canadian or international waters, the situation is less clear. While strictly speaking the employment may not he performed "in a country other than Canada", the problem nay be re- solved in that surely the spirit of the foregoing phrase is that the em- ployment not be performed in Canada. It is submitted that as a practical matter mere passage of a ship through Canadian or international waters would not result in the particular sailors on board being considered or described as employed in Canada. Further, it may well be that the country of registry of the vessel is more relevant to the jurisdiction of employment. We are inquiring further into this point and will no doubt communicate with you further in this regard.

We would appreciate your giving this matter your caring attention and, after you have considered the foregoing, we would suggest that a meeting would perhaps be useful.

Yours truly,

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