Principal Issues: Is a non-resident director who, while physically outside of Canada, participates, by phone, in a board meeting held in Canada, considered to be performing duties of offices and employments in Canada?
Position: To the extent that the duties of offices and employments are performed outside of Canada, they should not be taxable income earned in Canada.
Reasons: Duties of offices and employments which are performed outside of Canada by a non-resident are not subject to tax under subparagraph 115(1)(a)(i).
December 17, 2018
XXXXXXXXXX Headquarters
Income Tax Rulings Directorate
Yves Grondin,
LL. L., M. Fisc.2016-065903
Dear Mr. XXXXXXXXXX,
Directors' meeting by telephone and taxable income earned in Canada
This letter is in response to your email of April 11, 2016, in which you asked us, among other things, whether attendance fees received by non-resident directors of a corporation resident in Canada constitute taxable income earned in Canada. More specifically, you submitted the following hypothetical situation:
- Non-resident individuals are members of the board of directors of a corporation resident in Canada;
- the meetings of the board of directors are held in Canada;
- the non-resident directors do not travel to Canada for the meetings but participate by telephone from a location outside Canada; and
- the non-resident directors have not ceased to reside in Canada during the year or any previous year and do not physically travel to Canada during the year.
Our comments
Unless otherwise indicated, all statutory references herein are to the provisions of the Income Tax Act ("the Act") and all references to the "Regulations" are to the Income Tax Regulations.
Under subparagraph 115(1)(a)(i), incomes from the duties of offices and employments performed by a non-resident person in Canada must be included in the person's taxable income earned in Canada for the year in which it is received. Directors' fees received by a director of a corporation are considered to be income from an office. Your question concerns whether this office is exercised in Canada where the director performs it by telephone from a location outside Canada.
In our view, a non-resident director located outside Canada who participates in a meeting of the board of directors of a corporation resident in Canada held in Canada by means of a telephone system, or by means of any other telecommunications system, generally does not thereby realize income from an office or employment exercised in Canada. In those circumstances, the telephone system, or any other similar system, appears to us to be used as a means of transmitting services rendered from outside Canada.
When directors' fees are paid to a director who is not resident in Canada for work performed in Canada, withholding tax must be deducted from the amounts paid pursuant to paragraph 153(1)(a) and section 102 of the Regulations. However, subsection 104(2) of the Regulations provides that no amount shall generally be so deducted or withheld from a payment under section 102 of the Regulations where such payment is received in respect of an employee who was neither employed nor resident in Canada at the time of payment except in cases where the remuneration is reasonably attributable to the duties of any office or employment performed (or to be performed) in Canada by the non-resident person or in certain situations where the non-resident person has ceased to be resident in Canada. Thus, in accordance with those rules, directors' fees received by a non-resident director, who has not ceased to reside in Canada in the year or in a previous year, and who holds an office or employment outside Canada, should generally not be subject to withholding tax under Regulation 102.
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We hope you find our comments of assistance and that they answer any questions you may have.
Best regards,
Marie-Claude Routhier
Section Manager
for the Director
International Operations Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch