Principal Issues: [TaxInterpretations translation] In a particular situation, can a taxpayer claim the deduction under subsection 110.7(1)?
Position: Question of fact, but is appears yes in the present situation.
Reasons: The individual resides in a region covered by the Income Tax Regulations for a period of at least six consecutive months. Absences from the area covered by subsection 7303.1(1) of the Regulations are short-term and the frequency of absences in six consecutive months is not high.
June 9, 2011
XXXXXXXXXX Tax Services Office Headquarters XXXXXXXXXX Business and Partnerships Division Attention: XXXXXXXXXX A. Dagenais Advocate, M. Fisc. B.A.A.
2011-039672
Deduction for residents of prescribed areas
This is in response to your email of February 21, 2011, in which you requested our opinion as to whether a taxpayer may benefit from the deduction for residents of prescribed areas pursuant to subsection 110.7(1) of the Income Tax Act (the "Act").
Unless otherwise indicated, all statutory references herein are to the provisions of the Act.
In particular, you described a situation where a taxpayer works for XXXXXXXXXX on a worksite located in a XXXXXXXXXX area covered by subsection 7303.1 of the Income Tax Regulations (the "Regulations"). The taxpayer's work periods are XXXXXXXXXX. The taxpayer works at a worksite located in prescribed zone. In accordance with the contract of employment, the taxpayer returns to the taxpayer’s principal residence in XXXXXXXXXX every 35 days for a period of 8 days including transportation.
You wish to know if, in cases where individuals meet all of the prerequisites of subsection 110.7(1), does the qualifying period referred to in subparagraph 110.7(1)(b)(ii) apply to all the days stated in the contract of employment or only the accumulation of the 35-day periods?
Our Comments
The preamble to subsection 110.7(1) reads as follows:
Where, throughout a period (in this section referred to as the “qualifying period”) of not less than 6 consecutive months beginning or ending in a taxation year, a taxpayer who is an individual has resided in one or more particular areas each of which is a prescribed northern zone or prescribed intermediate zone for the year and files for the year a claim in prescribed form, there may be deducted in computing the taxpayer’s taxable income for the year [...](our emphasis)
The question of determining residence in a particular area is one of fact. It goes without saying that the application of section 110.7 does not restrict the individual to residing in a single region. The individual must, however, demonstrate, for the purpose of subsection 110.7(1), that the individual has resided (and not just stayed) in a prescribed area throughout a period of at least six consecutive months.
The verb "reside" is not defined in the Act and therefore, one must refer to its ordinary meaning. Le Petit Robert (2000) defines the word "résider" as follows: "être établi d'une manière habituelle dans un lieu; y avoir sa résidence". [TaxInterpretations translation: "to be established in a habitual way in a place, to have one's residence there"]. The Collins English Dictionary (Millennium edition) defines the word "reside" as follows: "to live permanently or for a considerable time (in a place)".
A similar question was analyzed in Morecroft v. Minister of National Revenue, 1991 DTC 937. In that case, Mr. Morecroft was employed in 1988 in a prescribed area and did not receive a special allowance for his employment in a remote area. He had installed a 20-foot trailer with an attached shelter. Mr. Morecroft took his meals, slept and directed his work in the trailer. The nearest motel and boarding house was 113 km away. His wife and children lived in Nanaimo, British Columbia. He worked in a prescribed area from January 5 to July 21 and from September 20 to the end of December 1988. He worked for five days and then took two days off. He often spent two days in Nanaimo just to stock up on supplies and visit his family.
In concluding that the appellant was entitled to the deduction for inhabitants of prescribed areas, Rip J. of the Tax Court of Canada pointed out that in order to be resident in a particular area, a person is not obliged to be consistently and uninterruptedly in the region. A resident of a particular area may leave on a variety of occasions for varying periods of time while remaining a resident of the area.
Consequently, individuals can reside in a prescribed northern or intermediate zone in a permanent way, that is, as part of their daily lives. Furthermore, other individuals reside temporarily in a prescribed northern or intermediate zone (but for a period of not less than six months) and elsewhere maintain a self-contained domestic establishment where they reside with their family on a regular, normal and habitual basis. The CRA believes that temporary absences from the place of residence in the prescribed northern or intermediate zone may constitute an interruption in the continuity of the period of residence. However, those temporary absences will not constitute a break in the continuity of the period of residence if they are of short duration and if they are not frequent.
In summary, we are of the view that, in order to meet the ordinary meaning of the words used in subsection 110.7(1), the individual must demonstrate, first and foremost, that the individual resides in a prescribed zone, and that the periods of absence from the zone prescribed by subsection 7303.1(1) of the Regulations are of short duration and the frequency of absences during the six consecutive months is not high.
In view of the foregoing, we are of the view that, in the situation you described, an individual who resides in a prescribed northern or intermediate zone for a period of at least six months and who has a 35-day work cycle in the said zone followed by an 8-day leave in his other residence at XXXXXXXXXX would be entitled to the deduction provided for in section 110.7.
With respect to your second question regarding the determination of the length of the individual’s "qualifying period" at the work site, we are of the view that it is necessary to consider every day where the taxpayer resides at the work site, including the period of absences of 8 days at the end of each work cycle.
If you have situations involving, for example, shorter work cycles or longer periods of absence, the facts specific to those particular situations should be examined to determine whether the position set out in the preceding paragraph applies. Please note that for your analysis, it would be useful to obtain information regarding any period of absence from the site, whether or not with paid leave.
Access to Information
For your information, unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should the taxpayer request a copy of this memorandum, they may request a severed copy using the Privacy Act criteria, which does not remove taxpayer identity. Requests for this latter version should be made by you to Ms. Celine Charbonneau at (613) 957-2137. In such cases, a copy will be sent to you for delivery to the taxpayer.
We hope that these comments are of assistance. If you wish additional information regarding the content of this document, do not hesitate to contact us.
François Bordeleau, Advocate
Manager
Business and Partnerships Division
Income Tax Rulings Directorate