Principal Issues: [TaxInterpretations translation] 1) How should a taxpayer proceed in order to claim an exemption from Canadian tax under paragraph 1 of Article XIX of the Canada-France Convention?
2) Can eligible child care expenses be claimed as a deduction by the spouse of a person who is exempt from Canadian tax under a Convention despite having a higher net income?
Position: 1) General comments.
2) No.
Reasons: Application of the Act.
2009-034209 XXXXXXXXXX Yannick Roulier 613) 957-2134 October 13, 2009
Subject: Income Tax and Benefit Return - Reporting Employment Income Exempt under an International Tax Treaty and Claiming Child Care Expenses
Dear XXXXXXXXXX:
This is in response to your fax dated June 9, 2009, in which you requested that we provide you with information regarding the submission of the following information in an Income Tax and Benefit Return ("Return"): employment income exempt under an international tax treaty; and a claim for child care expenses. We apologize for the delay in responding to this request.
We first provide a summary of the relevant facts submitted and a statement of your questions. We then provide our comments. Note that, unless otherwise stated, the legislative references below are to the provisions of the Income Tax Act (R.S.C. 1985, c. 1 (5th Supp.)) as amended (the "Act"), as in force on the date hereof.
Relevant Facts Submitted
Our understanding of the relevant facts submitted can be summarized as follows:
1. You are spouses and resided in Canada during the 2008 year.
2. During the 2008 year, the net income of Mr. XXXXXXXXXX exceeded the net income of Ms. XXXXXXXXXX.
3. During that same year, Ms. XXXXXXXXXX had as her sole income an amount of approximately $XXXXXXXXXX paid in euros by the French Republic for a job performed in XXXXXXXXXX (the "Salary").
4. No T4 slips were issued to Ms. XXXXXXXXXX for the Salary.
5. Ms. XXXXXXXXXX has French nationality.
6. The Salary constitutes to Ms. XXXXXXXXXX income exempt from Canadian tax pursuant to paragraph 1 of Article XIX of the Convention Between Canada and France for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and on Capital (the "Canada-France Convention").
7. During 2008, you incurred an amount of approximately $XXXXXXXXXX in child care expenses for services rendered in that year in respect of an eligible child, as defined in subsection 63(3) for the purposes of section 63.
8. This amount of child care expenses satisfies the conditions required by the Act to allow a deduction to be claimed in computing Mr. or Ms. XXXXXXXXXX's income in accordance with the requirements set out in section 63.
9. Ms. XXXXXXXXXX satisfied the following conditions throughout 2008:
- She did not attend an educational program on a full-time or part-time basis.
- She was not incapable of caring for children because of her mental or physical infirmity
- She was not confined to a prison or similar institution.
The statement of these facts is based on information provided by you, all as discussed between Mr. XXXXXXXXXX and the officer of record in a telephone conversation on October 6. No documents relevant to support the facts submitted have been made available to us.
Questions
1) How should Ms. XXXXXXXXXX's salary and claim for exemption from Canadian tax under the Canada-France Convention be presented in her 2008 return?
2) Can child care expenses be claimed as a deduction by Mr. XXXXXXXXXX for his 2008 taxation year?
Comments
The situation described in your facsimile is an actual situation involving taxpayers. As stated in paragraph 22 of Information Circular 70-6R5 issued on May 17, 2002, it is the practice of the Income Tax Rulings Directorate of the Canada Revenue Agency ("CRA") not to issue written opinions with respect to proposed transactions or situations otherwise than by way of advance income tax rulings. Furthermore, when it comes to determining whether an actual situation has received adequate tax treatment, that determination is made by CRA’s Tax Services Offices. However, we can offer the following general comments that we hope may be helpful to you. It should be noted that no analysis has been made of the relevant facts presented above; they are considered to be true for the purposes of this letter.
First, the total employment income amounts shown in box 14 of a taxpayer's T4 slips should generally be reported on line 101 of a return. Instead, a taxpayer's income from employment for a taxation year that is not reported on a T4 slip should be reported on line 104 of the taxpayer’s return for that year.
Furthermore, a taxpayer's claim for exemption from Canadian tax under paragraph 1 of Article XIX of the Canada-France Convention in respect of salaries, wages and other similar remuneration, other than pensions paid by France, must be claimed on line 256 of the taxpayer's return with the words "Income not taxable under a convention" as a clarification. Thus, this exemption from Canadian tax is technically provided to a taxpayer through a deduction in computing taxable income under subparagraph 110(1)(f)(i). Note that a taxpayer may attach an explanatory note to the taxpayer’s return to substantiate the claim for a deduction.
Second, in accordance with the relevant facts submitted above, child care expenses cannot be claimed as a deduction by Mr. XXXXXXXXXX for his 2008 taxation year. Indeed, only the spouse or common-law partner with the lowest net worldwide income (including nil income) can generally deduct these expenses. In this case, Ms. XXXXXXXXXX's net income is approximately $XXXXXXXXXX, which amount Mr. XXXXXXXXXX has confirmed to us is less than his net income for the 2008 taxation year.
It is appropriate to note that Ms. XXXXXXXXXX's claim for child care expenses will reduce her net income by approximately $XXXXXXXXXX for her 2008 taxation year. However, claiming a deduction under subparagraph 110(1)(f)(i) in computing her taxable income for the same year, if any, would not have the effect of making the result of that calculation negative, consistent with the application of subsection 2(2) and the definition of "taxable income" in subsection 248(1).
Note that references to lines in a return contained herein are from the 2008 version of this document. Should you require additional information, we generally refer you to the "2008 General Income Tax and Benefit Guide" as well as the T778 form "Child Care Expense Deduction for 2008", documents available on the CRA website at the following address: http://www.cra-arc.gc.ca/menu/APAP-e.html .
For your information, 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.
We hope that our comments are of assistance.
Best regards,
Alain Godin
for the Director
International Operations and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch.