Principal Issue: [TaxInterpretations translation]
For the purposes of subparagraph 110(1)(f)(iii) of the Act, is the income earned from the International Financial Centre ("IFC") of XXXXXXXXXX income from employment with a prescribed international organization?
Position:
No.
Reasons:
Paragraph 8900(a) of the Regulations requires that a prescribed international organization be a specialized agency that is brought into relationship with the United Nations in accordance with Article 63 of the Charter of the United Nations. Nothing in the available information allows us to conclude that this IFC qualifies as such.
October 2, 2002
Ms. Nicole Turner Headquarters Client Services Danielle Bouffard Shawinigan-Sud Tax Centre (613) 957-8953
2002-015341
Income from employment with a prescribed international organization
This is further to your memo of July 18, 2002 in which you requested our opinion as to the application of subparagraph 110(1)(f)(iii) of the Income Tax Act (the "Act") in the situation described below.
Your request concerns an individual employed by the XXXXXXXXXX International Financial Centre ("IFC"). This individual has provided you with a certificate from the individual’s employer and the document MFQ [ATT-CFIyé-R] 2001V1 "Partial Exemption from Income Tax for Employees of International Financial Centres Specializing in International Financial Transactions".
Subject to the other conditions provided for in the Taxation Act, the employee could be entitled, under section 737.16.1 of the Taxation Act, to a deduction in computing the individual’s taxable income corresponding to 50% of the individual’s total remuneration from the employer when filing the employee’s TP-1.D income tax return in Quebec.
You wish to know whether, in such a situation, the income earned from the IFC qualifies as income from employment with a prescribed international organization and can be deducted in computing taxable income under subparagraph 110(1)(f)(iii) of the Act. If the employment income earned by the individual does not so qualify, you would like to know what conditions are not met in this case.
Our Comments
In computing a taxpayer's taxable income for a taxation year, subparagraph 110(1)(f)(iii) of the Act provides for a deduction for income from employment with a prescribed international organization. Section 8900 of the Income Tax Regulations (the "Regulations") defines prescribed international organizations for the purposes of paragraph 110(1)(f) of the Act. According to paragraph 8900(a) of the Regulations, "the United Nations; and each international organization that is a specialized agency brought into relationship with the United Nations in accordance with Article 63 of the Charter of the United Nations” are prescribed international organizations.
The Articles of the Charter of the United Nations (the "Charter") which discuss the specialized agencies and which are relevant for the application of the Regulations are as follows:
Article 57
- The various specialized agencies, established by intergovernmental agreement and having wide international responsibilities, as defined in their basic instruments, in economic, social, cultural, educational, health, and related fields, shall be brought into relationship with the United Nations in accordance with the provisions of Article 63.
- Such agencies thus brought into relationship with the United Nations are hereinafter referred to as specialized agencies.
Article 63
- The Economic and Social Council may enter into agreements with any of the agencies referred to in Article 57, defining the terms on which the agency concerned shall be brought into relationship with the United Nations. Such agreements shall be subject to approval by the General Assembly.
- It may co-ordinate the activities of the specialized agencies through consultation with and recommendations to such agencies and through recommendations to the General Assembly and to the Members of the United Nations.
As specified in Article 59 of the Charter, the creation of new specialized agencies is aimed at the accomplishment of the purposes set forth in Article 55 of the Charter, which are essentially concerned with raising standards of living, solving international problems in various fields, including economic problems, and achieving universal respect for, and observance of, human rights and fundamental freedoms for all.
In view of the above, XXXXXXXXXX would have to be an agency in relation to the United Nations to be considered a specialized agency. Nothing in the documents you have sent us specifies this information. Furthermore, we were unable to find the name of XXXXXXXXXX as a specialized agency on the United Nations website.
Furthermore, international financial centres are governed by the Act respecting international financial centres (S.Q. 1999, c.86) (the "AIFC"). As specified in section 1 of the Act, the purpose of the Act is "to facilitate, mainly by means of tax incentives, the establishment, development and maintenance within the urban agglomeration of Montréal of businesses specializing in international financial transactions." The purpose of that initiative by the province of Quebec is to "foster and provide support for the development of Montréal as a centre for international financial activities." Under the AIFC, a number of tax incentives have been introduced, including a partial income tax exemption for employees of an IFC, such as the individual described here. However, this exemption is different from that described in paragraph 725(d) of the Taxation Act, which applies to income from employment with an international organization that is the United Nations or a specialized agency related to it by virtue of section 63 of the Charter.
In view of the foregoing, i.e., the objectives sought by an IFC as compared to those of a specialized agency related to the United Nations, and the absence of information regarding an agreement between XXXXXXXXXX and the Economic and Social Council of the United Nations submitted to the United Nations General Assembly for approval, we are of the view that the income earned by the individual from the IFC of XXXXXXXXXX. does not qualify as income from employment with a prescribed international organization and cannot be deducted in computing taxable income under subparagraph 110(1)(f)(iii).
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 Customs and Revenue Agency's 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 your client request a copy of this memorandum, the CRA library version can be provided. Alternatively, the client may request a severed copy using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Ms. Jackie Page at (819) 994-2898. A copy that has been severed in accordance with the Privacy Act will be sent to you for delivery to the client.
We hope you find these comments of assistance. Should you require any additional information regarding the content of this document, please do not hesitate to contact us.
Ghislaine Landry, CGA
for the Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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