| October 10, 1989 | |
| TO Non-Resident Taxation Division | FROM Specialty Rulings |
| Directorate | |
| O. Laurikainen | |
| J.D. Hartwick | 957-2125 |
| File No. 7-4298 |
Subject: Tax Guide - Canadian Forces Employees Outside Canada
We have reviewed the above guide as requested. Our comments and concerns with respect to the information presented in the guide are as set out below.
As discussed during our telephone conversation with Cheryl Charette on September 8, 1989, the comments made in the guide with respect to the taxation of the employment income of Canadian Forces school staff who do not maintain residential ties and who do not elect to be deemed resident in Canada, should be qualified. The employment income of such individuals is only subject to tax in Canada if the requirements for the exemption in subparagraph 115(2)(e)(i) have not been met i.e. only if the income is not subject to an income or profits tax imposed by a country other than Canada, will it be subject to tax in Canada under paragraph 11592)(c) and (e) of the Act. It is granted that under some of Canada's tax treaties including the Canada-Germany Income Tax Convention (1981), remuneration earned by a Canadian notional from governmental service would be taxable only in Canada. However, since the guide is directed at all Canadian Forces employees outside Canada, we would recommend the above qualification.
Under the heading "Deemed Residents of Canada", the second paragraph indicates that the spouse and the children of a deemed resident of Canada are also considered to be deemed resident. Since the spouse and the children of a person deemed resident by paragraph 250(1)(a) of the Act are not deemed resident under paragraphs 250(1)(e) or (f), we would suggest that the comments in the guide be narrowed to reflect this.
Certain comments in the guide indicate that a taxpayer under a particular set of circumstances is entitled to either a refundable or a non-refundable tax credit where that person could be entitled to both. In order to avoid any confusion that this may create, you may wish to refer to both types of tax credits in these instances. This problem is found in three places; under the heading "Factual residents of a province or territory" in the example, under the heading "Deemed residents of Canada" in the fifth paragraph, and again under the heading "Members of the overseas Canadian Forces school staff" in the fourth paragraph.
Under the heading "Ceasing to be employed by the Canadian Forces", the guide indicates that a person who ceases to be a Canadian Forces employee but remains abroad is considered to be a deemed or factual resident only to the date that he terminates his employment. Such a person and his or her spouse and children only cease to be deemed residents at this point; factual residence will depend on factors such as those outlined in Interpretation Bulletin IT-221R2. Also, while on the subject of part-year residents, at some point in the guide, it may be beneficial to provide a general description of the application section 114 of the Act.
A minor note is that Information Circular 84-3R3 which is referred to under the heading "Charitable Donations" in the guide was recently superceded by Information Circular 84-3R4 dated September 5, 1989.
There are also some other problems with material under the heading "Charitable Donations". Our comments on that issue are identical to those in the memorandum to you from Denise Dalphy of this Division with respect to the guide for External Affairs Employees and in addition as discussed above it may be beneficial in that guide to provide a general description of the application of section 114 of the Act.
for Director Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch