5 April 2001 External T.I. 2001-0069885 - Residence Treaties Remittance Basis

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Whether the result in the McFadyen (TCC) decision means that we have reversed our position that individuals who are subject to tax in a country on a remittance basis may still qualify as resident in that country for purposes of a tax treaty with that country.

Position: We have not changed our position.

Reasons: Our position in the McFadyen case was based on the fact that there was no evidence that the taxpayer paid or was even liable for any tax in Japan.

XXXXXXXXXX 	2001-006988
		Eliza Erskine
April 5, 2001

Dear XXXXXXXXXX:

Re: Residency Status for Income Tax Convention Purposes of Individuals
Taxed on a Remittance Basis - McFadyen Decision

This is in reply to your letter of February 6, 2001, asking us to comment on the decision of Judge Garon in McFadyen v. The Queen, 2000 DTC 2473 (TCC), with particular regard to our stated position at the 1998 Canadian Tax Foundation Conference (the "1998 CTF Position"), regarding the residency status of individuals subject to tax on a remittance basis in a contracting state for the purposes of paragraph 1 of the residence article of an income tax convention. We also acknowledge our telephone conversation with you of April 2, 2001, (Erskine/XXXXXXXXXX), in which you requested that we confirm to you in writing that we have not changed or rescinded our 1998 CTF Position.

Our Comments

As discussed with you in our telephone conversation of April 2, 2001, our position with respect to the residency status of the taxpayer in McFadyen, (i.e., that Mr. McFadyen was not resident in Japan for purposes of the Canada-Japan Income Tax Convention), was based principally on the fact that the taxpayer had not demonstrated that he had actually paid any tax to the Japanese government, or that he was even subject to tax in Japan (on a remittance basis or otherwise). It is our understanding that, generally, Japan does tax foreign individuals resident in Japan on a remittance basis. However, it is also our understanding that a foreign individual who is the spouse of a diplomat (as Mr. McFadyen was) is exempt from tax in Japan under the internal tax law of Japan.

It is our view that the decision of Judge Garon in McFadyen was based on the specific facts of the tax situation of the taxpayer in that case. In any event, the McFadyen decision does not reflect a change in, or rescission of, our 1998 CTF Position. Generally, our position continues to be that individuals who are subject to tax on a remittance basis in a contracting state are liable to tax in that state on a world income basis and, therefore, are not precluded from being resident in that state for the purposes of paragraph 1 of the residence article of an income tax convention.

We trust that the above comments will be of assistance to you.

Yours truly,

Jim Wilson
for Director
International and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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