Principal Issues: Application of section 118.94 of the Act where non-resident individual receives a special work site allowance described in subsection 6(6).
Position: Special work site allowance not included in income or in taxable income earned in Canada.
Reasons: Specifically excluded from income by subsection 6(6) of the Act.
2008-029766 XXXXXXXXXX A. Seidel (613) 957-2058 December 23, 2008
Dear XXXXXXXXXX :
Re: Application of Section 118.94
This is in reply to your letter of October 23, 2008 wherein you requested our views on the application of section 118.94 of the Income Tax Act (the "Act") in the circumstances described below.
You describe a situation where a non-resident corporation employs a non-resident individual in the course of carrying on a business in Canada. The individual is in receipt of a salary, a taxable allowance and a non-taxable special worksite allowance (described in subsection 6(6) of the Act) while performing duties of employment in Canada. You query whether the non-taxable allowance would be included in the individual's "income for the year" for purposes of section 118.94 of the Act.
Our Comments
The situation outlined in your letter relates to transactions that involve specific taxpayers. It is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. For more information about how to obtain a ruling, please refer to Information Circular 70-6R5, Advance Income Tax Ruling", dated May 17, 2002. This Information Circular and other CRA publications can be accessed on the Internet at http://www.cra-arc.gc.ca. Should your situation involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate Tax Services Office ("TSO") for their views. A list of TSOs is available on the "Contact Us" page of the CRA website. Although we cannot comment on your specific situation, we are prepared to provide the following general comments which we hope will be of assistance.
Section 118.94 of the Act provides rules with respect to non-refundable tax credits allowed to individuals who did not reside in Canada at any time in a taxation year. Subject to section 217 of the Act, such individuals are not allowed to claim certain non-refundable tax credits for a taxation year unless all or substantially all of the individual's "income for the year" is included in computing the individual's taxable income earned in Canada for the year. A non-resident individual's taxable income earned in Canada for the year includes, pursuant to paragraph 115(1)(a) of the Act, any income from the duties of an office or employment performed by the individual (including any taxable benefits received or enjoyed by the individual by virtue of that employment). The individual's taxable income earned in Canada does not include a non-taxable allowance, such as described in subsection 6(6) of the Act. In addition, it is our view that such a non-taxable allowance would not be included in the individual's "income for the year" for purposes of section 118.94.
We trust our comments are of assistance.
Yours truly,
Daryl Boychuk
Manager, International Tax Section I
International & Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch