Section 81

Subsection 81(1) - Amounts not included in income

Paragraph 81(1)(a) - Statutory exemptions


The Queen v. AEL Microtel Ltd., 86 DTC 6348, [1986] 2 CTC 108 (FCA)

The intention of Parliament to exempt the amount of a development incentive from income tax is not frustrated by taking the amount into account under s. 13(7.1). "Taking the incentive into account does not effectively avoid its exemption from taxation, it merely ensures that an equal amount of future earnings, not exempted from tax, will not escape taxation by virtue of capital cost allowance."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 13 - Subsection 13(7.1) 78

See Also

Lapierre v. The Queen, 2019 TCC 18

agency was not a NATO subsidiary non-military body

The taxpayer, who was an employee of the International Security Assistance Force (ISAF) in Afghanistan serving as an international civilian consultant (ICC), was unsuccessful in establishing that his salary was exempted under s. 81(1)(a) by virtue of the Ottawa Agreement appended to the Privileges and Immunities (North Atlantic Treaty Organisation) Act.

After noting the exemption in the Ottawa Agreement for non-military NATO officials, Lamarre ACJ stated (at paras. 34-35)

The Appellant did not establish that ISAF is one of NATO’s subsidiary bodies. The evidence rather establishes that ISAF was set up by United Nations Security Council … .

… [E]ven if ISAF were to be considered a subsidiary body of NATO … [and] despite the fact that ISAF employs civilian personnel like the Appellant, it is still a military body.

Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Regulation 8900 - Subsection 8900(1) - Paragraph 8900(1)(b) UN-authorized agency was not a UN agency 114
Tax Topics - Income Tax Act - 101-110 - Section 110 - Subsection 110(1) - Paragraph 110(1)(f) - Subparagraph 110(1)(f)(iii) a Canadian resident working for a UN-authorized agency in Afghanistan was not exempted 101

Administrative Policy

26 August 2015 External T.I. 2015-0564171E5 F - Paiements d'un RPAC à un Indien

pension distribution to Indian included in income under s. 56(1)(z.3) before excluded under s. 81(1)(a)

Respecting a question on the possibility of reducing income tax source deductions where payment is made to a member of a pooled registered pension plan ( "PRPP"), the participant is an Indian under the Indian Act, and the contributions came from exempt earned income, CRA first stated:

Section 147.5 does not include a provision which would ensure that distributions from a PRPP will not be included in computing income under paragraph 56(1)(z.3), where they come within paragraph 81(1)(a). Thus, distributions from a PRPP will first be included in the participant's income under paragraph 56(1)(z.3) and they will then be excluded, where applicable, from income when applying paragraph 81(1)(a).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 153 - Subsection 153(1.1) procedure for reduced withholding on pension distributions to status Indian 187

9 April 2013 External T.I. 2012-0461051E5 F - Employee of an international organization

exemption for UN officials did not apply to a Canadian resident

A Canadian citizen and resident is working with an organization that provides services with an unidentified relationship with the mandate of the United Nations. Under the terms of an international agreement, the individual’s salary is subject to domestic taxation including source deduction in the country where the individual is working.

After finding that the individual’s income could not be excluded from income through a deduction under s. 110(1)(f)(iii), CRA stated:

[T]he Foreign Missions and International Organizations Act (the "FMIOA") is one of the federal statutes under which an amount may be exempt from income tax in Canada within the meaning of paragraph 81(1)(a).

The XXXXXXXXXX Order was issued pursuant to paragraph 5(1)(g) of the FMIOA and provides that XXXXXXXXXX officials have in Canada the privileges and immunities set out in Article V of the UN Convention. According to this provision, United Nations officials are exempt from all taxation on the salaries and emoluments paid to them by the United Nations. An official of an organization, according to IT-397R, is a person named and agreed on between the organization in question and its member states and designated as such by the Governor in Council.

Subsection 5(3) of the FMIOA states that nothing in any order made under subsection 5(1) of the FMIOA exempts a Canadian citizen, residing or ordinarily resident in Canada, from liability for any taxes or duties imposed by a law in Canada. . Therefore, since you are a Canadian citizen and reside in Canada, you cannot benefit from an exemption from Canadian taxation on the salaries and emoluments paid by XXXXXXXXXX under paragraph 81(1)(a), even if you meet the definition of "official" above.

Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Regulation 8900 - Subsection 8900(1) - Paragraph 8900(1)(b) organization was not a specialized agency related to the UN 106
Tax Topics - Income Tax Act - Section 126 - Subsection 126(3) credit for local taxes imposed on salary of Canadian resident working for an international organization 231

9 January 2001 External T.I. 2000-005344 -

Where a non-resident corporation derives income or a capital gain which is exempted from tax under Part I by a treaty, s. 81(1)(a) provides that such amount shall not be included in income of the corporation for the taxation year. No deduction under s. 110(1)(f)(i) may be claimed in respect of an amount that is exempt under s. 81(1)(a).

Paragraph 81(1)(c) - Ship or aircraft of non-residents


Furness Withy & Co. Ltd. v. MNR, 66 DTC 5358 (Ex Ct), aff'd 68 DTC 5033, [1968] CTC 35, [1968] S.C.R. 221

The taxpayer, which was a resident of the U.K. and carried on an international shipping business both directly and through subsidiaries, provided various services through its Canadian branch office in respect of both its own ships and those of subsidiaries, including the provision of stevedoring services, the finding and booking of cargo for the ships and attending and participating in the rate setting and other activities in the Canada-U.K. Eastbound Freight Conference. In finding that the profits attributable to these services provided in relation to the taxpayer's own ships came within the exemption in s. 10(1)(c) of the pre-1972 Act for "income for the year of a non-resident person earned in Canada from the operation of a ship or aircraft owned or operated him", Thurlow J. stated (p. 5366):

"Both the 'agency' and stevedoring services in respect of which the entries arose were part of the process of operating the ships and the amounts entered in the books in respect of such services do not become any the less exempt by reason of the manner in which the appellant organized the activities of its branches or arranged their bookkeeping and accounting."

However, no similar exemption applied to such services provided to subsidiaries.

Administrative Policy

24 December 2015 Internal T.I. 2014-0560831I7 - International shipping

commercial management is still sufficient/charterparties are “leases”

The Taxpayer is a non-resident corporation that carries on business in many countries, including Canada. The activities of the non-resident Taxpayer in Canada help satisfy the shipping requirements of related companies (the “Related Party Customers”), who generally are residents of Canada or non-residents carrying on business in Canada and who are not themselves in the shipping business. Would the Taxpayer’s activities carried on in Canada be considered “the operation of a ship in international traffic” under the previous version of s. 81(1)(c), or as “international shipping” under the current version (so that various chartering arrangements could be considered “leases” under the new “international shipping” definition?

Respecting the former version, CRA stated:

[T]he Taxpayer never has management of the ships’ operations, in that it is not responsible for the crew nor the service and maintenance of the ships…[so that it] does not have the “Technical Management” of the ships. However…this requirement could also be met where the Taxpayer has the so-called “Commercial Management” of the ships…[which] means the right to exploit the earning capacity of the ship…[which] right does not necessarily go hand in hand with the responsibility for the crewing and maintenance of the ship. … [T]he Taxpayer would need to demonstrate that the ship owner is operating the ship under the Taxpayer’s direction and not, in effect, under the direction of the Related Party Customers.

Respecting the post-amendment version, CRA stated:

[T]hese amendments were not intended to effect any significant scope limitations. …[T[]he term “lease” as used in the specific context of the international shipping rules would include chartering arrangements whereby taxpayers do not have the Technical Management of the ship but do have the Commercial Management of the ship. As such, we are of the view that the Taxpayer may continue to qualify for the international shipping exemption in taxation years that begin after July 12, 2013 on the same basis as for taxation years beginning before that time, that is, provided that the Taxpayer has the Commercial Management of the ship.

Words and Phrases
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - International Shipping lease includes time charter 65

16 June 2014 External T.I. 2013-0515431E5 - International traffic and airline enterprise

non-resident's provision of crew and aircraft to Canadian airline

During peak season, Canco, which transports passengers to destinations inside and outside Canada, is supplied planes, and non-resident pilots and crew by an arm's length U.K. resident ("Forco") who is the pilots' and crew's employer, to transport Canco's passengers. In finding that Forco qualified under s. 81(1)(c) provided similar relief was provided in the U.K., CRA stated:

Forco could be viewed as earning income in Canada from the operation of an aircraft in international traffic within the meaning of paragraph 81(1)(c), notwithstanding that the tickets held by the passengers on its flights represent contracts for services between the passengers and Canco.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 115 - Subsection 115(1) - Paragraph 115(1)(a) - Subparagraph 115(1)(a)(i) application of Sutcliffe/Price allocation approach were s. 115(3) not applicable 140
Tax Topics - Income Tax Act - Section 115 - Subsection 115(4) non-resident's provision of crew and aircraft to Canadian airline 140
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - International Traffic non-resident's provision of crew and aircraft to Canadian airline 103
Tax Topics - Income Tax Regulations - Regulation 102 - Subsection 102(1) Reg. 102 withholding or waiver notwithstanding Treaty exemption 162
Tax Topics - Treaties - Income Tax Conventions - Article 15 U.K company's provision of crew to Canadian airline/Reg. 102 withholding or waiver notwithstanding Treaty exemption 285

4 June 1996 T.I. 96 1114

General discussion.

4 May 1995 T.I. 951182 (C.T.O. "Shipping Income - Residents of Greece")

"As it is our understanding that Greece continues to exempt residents of Canada from its Freight Tax on the basis of the bilateral arrangement between Canada and Greece agreed to in the above-mentioned exchange of diplomatic notes [in September 1929], paragraph 81(1)(c) of the Act will operate to exempt the income for the year of a resident of Greece earned in Canada from the operation of a ship in international traffic."

June 1992 Hong Kong Seminar (May 1993 Access Letter, p. 227)

"Income from the operation of a ship" does not include a capital gain from a disposition of the ship, nor will the capital gain be included in the taxpayer's "gross revenue".

92 C.M.TC - Q.6

"Income from the operation of a ship" does not include a capital gain from the disposition of the ship.

2 July 1991 T.I. (Tax Window, No. 5, p. 15, ¶1326)

The foreign country will be considered to grant substantially similar relief if it does not impose an income tax, or if the income from the operation of the ship or aircraft in international traffic is exempt from tax in that country.

The exemption does not apply to income from a dry lease or bare boat charter because such income is not income from the operation of a vessel.


Michael Shields, "Taxation of International Shipping Companies in Canada", International Tax (Wolters Kluwer CCH), No. 88, June 2016, p. 1

General non-imposition is substantially similar relief (p.2)

The country in which the foreign company is resident must provide "substantially similar relief" from tax for a resident of Canada. The CRA has stated that they consider a country that does not impose an income tax as providing substantially similar relief. [fn 11: …July 1991-20.]

Quaere whether exemption excludes return-filing obligation (p. 4)

Although it is clear that foreign companies who carry on international shipping operations and receive assistance from Canadian-based employees are not taxed in Canada on their income, it is not clear whether these companies could be viewed as carrying on business in Canada and as a result, required to file a nil Canadian tax return. [fn 20: The Branch Exemption found in paragraph 81(l)(c) only provides that the international shipping income earned by the foreign taxpayer is not subject to Canadian income tax – it does not provide that the company is not carrying on business in Canada….]… For a large international shipping company with significant employees in Canada, this result could mean filing hundreds of nil returns...each year.

Owen, "Tax Issues in International Shipping", 1993 Canadian Tax Journal, Vol. 41, No. 4, p. 724.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 250 - Subsection 250(6) 0

Lang, "Taxation of International Aviation: A Canadian Perspective", 1992 Canadian Tax Journal, No. 4, p. 881.

Paragraph 81(1)(d) - Service pension, allowance or compensation

Administrative Policy

5 July 2013 Ministerial Correspondence 2013-0489561M4 - Taxation of the Veterans Independence Program

Under a recent change in the Veterans Independence Program, recipients would get lump sums to pay vendor invoices rather than sending the invoices to Veterans Affairs Canada. These lump sums are not taxable (the same as before), because the are received pursuant to the Pension Act.

Paragraph 81(1)(e) - War pensions

Administrative Policy

10 July 2014 External T.I. 2014-0529791E5 - Pension income arising in Hong Kong

Hong Kong an ally of Canada

Respecting the treatment of a Hong Kong War Memorial Pension received by a resident of Canada, CRA stated: we would consider a pension received from Hong Kong SAR to be a pension received from a country that was an ally of Canada at the time of the Second World War.

Paragraph 81(1)(g.1) - Income from personal injury award property

Administrative Policy

28 January 1992 Memorandum (Tax Window, No. 16, p. 17, ¶1723)

A lump-sum payment received by an individual through a consent to judgment of the Supreme Court of Canada as a result of his claim for compensation under a long-term disability plan for an automobile accident injury, will not be exempted by s. 81(1)(g.1) because there is no award for damages, and no income from property acquired as a result of an award for damages.

Paragraph 81(1)(h) - Social assistance

See Also

Norton v. The Queen, 2009 DTC 1102 [at 558], 2008 TCC 91, aff'd 2010 DTC 5090 [at 6898], 2010 FCA 138

The taxpayer resides at and operated two special care homes. Subsidies which she received from the Province of New Brunswick to cover part of the costs of care for residents did not qualify as social assistance payments under s. 81(1)(h) given that they represented consideration for services provided by her in the course of her business of providing long-term care services.

Administrative Policy

19 March 1992 Memorandum (Tax Window, No. 18, p. 17, ¶1821)

Amounts paid to a care giver to cover the room and board of a handicapped person are not included in his employment income.

See also ¶1850.

Subsection 81(2) - M.L.A.‘s expense allowance

Administrative Policy

83 C.P.T.J. - Q.24

Any allowances received by a member of a legislative assembly (or by an municipal officer) that reimburse her for expenses considered to be personal in nature will be required to be included in her income.

An allowance described in s. 81(2) will not be subject to tax under s. 6(1)(b).

6 August 1992 T.I. 921792 (April 1993 Access Letter, p. 143, ¶C76-065)

A per diem allowance of $100 would not qualify for exemption.

Subsection 81(3) - Municipal officers’ expense allowance


Bellrose v. Canada, 2012 DTC 5068 [at 6922], 2012 FCA 67

The Court found that the Métis Nation of Alberta Association ("MNAA") was not an incorporated municipality. Although MNAA was incorporated under a provincial act and had a complex governance structure, it did not have powers of self-government and did not provide the services that a municipality typically provides. The taxpayer's contention that MNAA would have provided municipal-like services if given greater funding was not germaine to the point that it did not in fact provide such services.

Moreover, MNAA simply could not fall within the ordinary meaning of "municipality", nor Alberta's Municipal Government Act, which contemplated that a municipality be formed "for an area." Dawson J.A. stated (at para. 20):

It may be possible to envision a different legal model, in which a municipality may be established on some basis other than a geographic standard. However, as counsel for the Minister observed, legislative change would be required to permit such an outcome.

Words and Phrases

Administrative Policy

26 June 1995 T.I. 950321 (C.T.O. "Municipal Officer's Expense Allowance")

Taxable benefits such as the automobile standby charge are not considered to be amounts "paid" as salary or other remuneration as required by the municipal officer's contract of employment.

Subsection 81(3.1)

Administrative Policy

27 March 2012 External T.I. 2011-0423851E5 F - Allocations pour frais de déplacement

part-time employment includes part-time office/usual place of performance referenced

Some employees are partially released from their regular employment in order to fulfill their duties in the course of a part-time office and, as part of their travel to fulfill their latter duties, they receive allowances for expenses incurred for meals, transportation and child care. CRA stated:

For the purposes of subsection 81(3.1), we are of the view that the term "part-time employment" could include a part-time office.

In this situation, we are of the view that only travel allowances, including meal allowances, received by employees for travel to the usual place where they perform their XXXXXXXXXX duties could be covered by the subsection 81(3.1) provided that all conditions for the application of subsection 81(3.1) are satisfied.

Consequently, travel allowances, including meal allowances, to attend meetings away from the usual location where employees perform their duties XXXXXXXXXX, as well as child care expense allowances are not travel allowances referred to in subsection 81(3.1).

S2-F3-C2 - Benefits and Allowances Received from Employment

Part-time employment

2.50 Subsection 81(3.1) excludes from a part-time employee’s income reasonable allowances for, or reimbursements of, travel expenses incurred in getting to and from their part-time employment. The exclusion applies if:

  • the employee and the employer were dealing at arm's length
  • throughout the period that the expenses were incurred, the employee had other employment, was carrying on a business, or was a part-time teacher or professor working for a designated educational institution in Canada; and
  • the part-time employment was performed at a location not less than 80 kilometres from:
    • both the employee's home and the place of the other employment or business; or
    • the employee’s home if the employee was a part-time teacher or professor.

2.51 A part-time employee is generally someone who, for a day, week, month, or year, is employed for irregular hours of duty or for specific intermittent periods (or both), and whose services are not required for the normal work day, week, month, or year.

Words and Phrases
part-time employee

Subsection 81(4)

Administrative Policy

15 August 2012 External T.I. 2012-0444461E5 F - Pompiers volontaires

“volunteer firefighter” has the same meaning as in s. 118.96(1)
Similar to 2012-0442321E5 F.

In finding that firefighters in a particular town were not entitled to the credit, CRA stated:

According to the Proceedings of the Standing Senate Committee on National Finance (footnote 1), the volunteer firefighters tax credit provided for in section 118.06 was introduced to provide tax relief to volunteer firefighters who cannot claim the subsection 81(4) exemption because they receive little or no remuneration.

We are of the view that the term "volunteer firefighter" has the same meaning for the purposes of subsection 81(4) and section 118.06.

…In the event that, without being equivalent, the hourly rate of a volunteer firefighter is comparable to that of a regular firefighter, we are of the view that the amount paid would not be considered "minimal". As a result, the firefighter in this situation would not be considered to be acting as a volunteer for the purposes of subsection 81(4) and section 118.06.

… [A]n individual who is required to work a minimum number of hours in a given period of time, except for a very limited number of hours, is generally not considered to be a volunteer firefighter for the purposes of subsection 81(4) and section 118.06.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 118.06 - Subsection 118.06(1) not a “volunteer” if paid more than a minimal amount or minimum hours are required 220