11 April 2023 Internal T.I. 2023-0964101I7 - Tax issues for cross-border employees -- summary under Subsection 126(1)

A portion of the employment duties of a cross-border employee (with a hybrid work arrangement) was exercised from Canada in the year but the individual made contributions under the U.S. Federal Insurance Contributions Act (“FICA contributions”). In finding that the FICA contributions made in respect of the duties exercised in Canada would not be eligible for a foreign tax credit, the Directorate referenced the rule in Art. XXI:2(a) requiring that the tax be paid on income “arising” in the U.S. and indicated that generally it would regard only that proportion of the employment income that corresponded to the days in which the employee was performing duties of employment while “physically present” in the U.S. as compared to the days of physical presence in both jurisdictions while performing those duties, would satisfy this “arising” test.