27 April 1988 Income Tax Severed Letter 5-5838 - [Computation of taxable income by part-time residents and non-residents of Canada]

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.

O.S. Laurikainen (613) 957-2125

April 27, 1988

Dear Sir:

INDEXED -

Re: Computation of taxable income by part-time residents and non-residents of Canada

This is in reply to your letter of March 16, 1988. You have enquired whether you would be entitled to claim full Canadian personal exemptions if you elected to include in your 1987 Canadian tax return, income for the portion of the 1987 taxation year when you were a non-resident of Canada. Similarly, you have enquired whether this would be the case for the 1988 and subsequent taxation years.

It is always a question of fact whether an individual who leaves Canada will continue to be a resident of Canada for tax purposes. The criteria used by Revenue Canada, Taxation to determine the residency status of such an individual are set out in Interpretation Bulletin IT-221R2 , a copy of which is enclosed for your perusal. Your status may be clarified by contacting the District Taxation Office nearest to where you last resided in Canada. For the purposes of our reply, we have assumed that you were a resident of the United Kingdom and not a resident of Canada for the period of time you resided in the United Kingdom.

Generally, the Canadian Income Tax Act (the "Act") provides for a 25% withholding tax on amounts that a person resident in Canada pays to a non-resident of Canada. However, there is no requirement to withhold tax with respect to interest paid on Treasury Bills to a non-resident of Canada.

The Canada-United Kingdom Income Tax Convention (the "Convention") provides that superannuation or pension payments made by a resident of Canada to a resident of the United Kingdom are exempt from this withholding tax in Canada. However, the Convention provides no reliefi from the 25% withholding tax in Canada with respect to lump sum payment made out of a RRSP.

The Convention also provides that where a taxpayer is subject to tax in the United Kingdom only in respect of that income which is remitted to the United Kingdom, the relief from tax, allowed in Canada shall apply only to the amounts so remitted. Accordingly, your pensio payments will be subject to 25% withholding tax in Canada if such amounts are not remitted and taxed in the United Kingdom.

1987 - The year you become a non-resident of Canada

As indicated, you will be required to file a Canadian income tax return in which you will report your world income earned in 1987 during the period in which you were a resident of Canada. Prorated personal exemptions are deductible in arriving at taxable income. In addition, you may, elect to include in this return, income which was earned in 1987, during the period in which you were a non-resident of Canada. If you choose to make this election, you will be required to include in income all amounts received out of your RRSP and pension funds, however, the interest received on the Government of Canada Treasury Bills will not be included in this income. Under the election, you will be permitted to deduct from income an amount equal to any portion of your pension income which has been remitted to the United Kingdom. The deduction with respect to personal exemptions is limited to any amount that can be used to bring the income, on which an election was made, to zero. The taxable income reported on your income tax return following this election, will under no circumstances, be less than it was prior to the election. Also your total personal exemption claimed cannot exceed the maximum available in 1987 to a resident of Canada. Enclosed is a copy of Form NR 5 (Rev 88) which is to be used to make the election and must be filed within six months after the end of each taxation year.

1988 and subsequent years

The Income Tax Act is currently undergoing amendments in this area. Since the legislation and regulations to implement this reform have not been finalized as of this date, we are not in a position to comment on the taxation of your Canadian income if you make an election in the 1988 and subsequent taxation years. You may wish to follow up this request at a later date.

In addition we are attaching a copy of Interpretation Bulletins IT-163R2 and IT-193 for your information and trust that our comments will be of assistance to you.

Yours truly,

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