8 June 1988 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.

MPlr. André Plant Director Financial Systems & Operations Comptroller's Branch Canadian International Development Agency Place du Centre 200 Promenade du Portage Hull, Québec K1A 0G4

June 8, 1988

D.Y. Dalphy (613) 957-2117

Re: Deemed Resident in Canada Section 3400 of the Income Tax Regulations (the "Regulations") International Development Assistance Program of CIDA

This is to advise you of our interpretation of the above-noted section of the Regulations following our recent review of the intended scope of that provision.

Request for our Opinion

As you are aware, our concerns regarding the interpretation of this provision arose as a result of a request for an opinion regarding the residency status of a taxpayer who, in late 1987, moved out of Canada to work for two to four years on a project that receives funding from CIDA. As the facts of the situation indicate that the taxpayer will not actually be resident in Canada during his service overseas, the issue in this case relates to the deemed resident provision set out in paragraph 250(1)(d) of the Income Tax Act (the "Act") and, in particular, section 3400 of the Regulations. If the taxpayer is deemed resident in Canada he would be subject to taxation in Canada on his world income, he would not be entitled to the overseas employment tax credit and subparagraph 6(1)(b)(iii) allowances received by him would be excluded from his income computation.

The Law

Paragraph 250(1)(d) of the Act deems a person to be resident in Canada throughout a taxation year if he performed services outside of Canada "under a prescribed international development assistance program of the Government of Canada" and if he also "was resident in Canada at any time in the 3 months' period preceding the day on which such services commenced".

Section 3400 of the Regulations provides that if two criteria ((1) the program is an "international development assistance program of the Canadian International Development Agency" and (2) that program is "financed with funds (other than loan assistance funds) provided under External Affairs Vote 30a, Appropriation Act No. 3, 1977-78, or another vote providing for such financing") are satisfied, a program is prescribed as an international development assistance program of the Government of Canada.

History

Section 3400 of the Regulations was amended significantly in 1974. Prior to that time, the section provided:

"... the

(a) Colombo Plan Program

(b) Commonwealth Caribbean Assistance Program

(c) Special Commonwealth Africa Program, and

(d) French-speaking African States Program

that are financed by funds ... are hereby prescribed ..."

We consulted with Mr. D. Sugg of the Department of Finance about this change to the Regulations. It appears that the sole reason for this amendment was that CIDA had advised the Department of Finance that a number of the listed programs no longer existed.

Interpretation

We wish to confirm, therefore, that in our view, a broad and consistent interpretation must be given to section 3400 of the Regulations. That is, we are of the opinion that persons performing services under an international development assistance program that receives some funding (other than loan assistance funds) through CIDA will be deemed resident in Canada pursuant to paragraph 250(1)(d) of the Act if the 3 months' residency provision is met. As indicated at a meeting between yourself and my predecessor, this is based on the following factors:

1. i) External Affairs Vote 30a, which provides CIDA with certain funds, provides for grants and contributions for "international development assistance, international emergency relief and other specified purposes ...". It is our view that the words "international development assistance program of CIDA" are used in section 3400 of the Regulations so that other programs funded by CIDA, such as international emergency relief programs, would be excluded from the ambit of the section;

(ii) Generally, the words used in section 3400 of the Regulations are not precise technical terms but are unmodified everyday words, thereby implying the wide scope of the section. For example, the words "international development assistance program of CIDA" are used rather than words such as 'international development assistance program carried on by or on behalf of CIDA' and the word "funding" is not modified by terms such as 'significant', 'substantial' or 'complete';

2. Only persons who were resident in Canada immediately prior to performing services under a prescribed program will be deemed resident in Canada pursuant to paragraph 250(1)(d) of the Act; and

3. We are not aware of a contrary policy intention.

We trust that the foregoing will clarify an interpretation of section 3400 of the Regulations.

Yours truly,

Director Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch