29 June 1995 External T.I. 9429615

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.

		942961
XXXXXXXXXX	David R. Senécal

Attention: XXXXXXXXXX

June 29, 1995

Dear Sirs:

Re: Section 114 of the Income Tax Act (the "Act")

This is in reply to your facsimile of November 17, 1994, wherein you seek our views on the application of section 114 of the Act in the following situation:

• Employee A was hired on January 1 by Employer Co., a non-resident company;
• During the period January 1 to July 15, employee A performed 90-95% of his employment duties outside Canada;
• Pursuant to the terms of the employment contract signed on July 1 and retroactive to January 1, employee A was entitled to a salary in excess of the original monthly salary paid to him;
• Employee A has received his original salary on a monthly basis while the money representing the incremental increase in salary had yet to be received by Employee A as of the date of your letter;
• On July 15, Employee A severed residential ties with Canada and became a non-resident;
• Sometime after the date of your letter, the incremental salary increase was to have been paid in a lump sum.

It would appear from the precise nature of your query that we are being asked to provide our views with respect to a factual situation involving a possibly completed transaction. As indicated in paragraph 21 of Information Circular 70-6R2, we are not in a position to deal with factual proposed transactions other than in the form of an advance ruling request where the identity of the parties is known and all the facts surrounding the proposed transaction are presented to us. Issues involving completed transactions should be addressed the appropriate District Taxation Office of Revenue Canada. Notwithstanding the foregoing, we offer the following general comments which may or may not apply to your particular situation.

In our view, it is a question of fact as to whether or at what point in time a particular taxpayer has ceased to be a resident of Canada for income tax purposes.

It is also a question of fact as to whether a plan or arrangement whereby a taxpayer has a right to receive a retroactive salary increase, in circumstances similar to those described above, would constitute a salary deferral arrangement for purposes of the Act. If such were to be the case, the portion of the retroactive salary increase relating to the taxpayer's employment while a resident in Canada would be included in the taxpayer's income for the year pursuant to the provisions of subsections 114(a) and 6(11) and paragraph 6(1)(a) of the Act.

We trust that these comments will be assistance to you and we apologize for the delay in responding to your enquiry.

Yours truly,

for Director
Reorganizations and Foreign Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch