2013-0484501E5 Article XV of Canada-U.S. Treaty

Principal Issues: Where an individual has derived income from the exercise of an employment in Canada throughout a taxation year, but ceased to be a resident of Canada to become a resident of the United States at a particular point in that year, does the remuneration described in subparagraph 2(a) of Article XV include all remuneration derived by the individual from the exercise of that employment throughout the year?

Position: Yes.

Reasons: In applying Article XV in the case of a resident of the United States, all remuneration derived in a taxation year by the individual from employment exercised in Canada is included for purposes of the de minimis test in subparagraph 2(a) to the extent that the remuneration is derived by the individual from the same employment.

Author: Demeter, Robert
Section: -

XXXXXXXXXX
                                                                                                                                           2013-048450

February 10, 2015

Dear XXXXXXXXXX:

Re:   Article XV of the Canada-United States Income Tax Convention (the “Treaty”)

We are writing in response to your email of April 8, 2013.  We do apologize for the delay in responding.

In your email, you requested our views on the application of subparagraph 2(a) of Article XV of the Treaty in a situation where an individual has derived income throughout a taxation year from the exercise of employment in Canada with one employer.  At a particular point in the year, the individual ceased to be a resident of Canada for purposes of the Income Tax Act, and became a resident of the United States under that country’s domestic tax legislation. While the individual’s total income in the taxation year from the exercise of the employment in Canada did exceed $10,000 in Canadian currency, the portion that related to the exercise of employment during the period in which the individual was no longer a Canadian resident did not exceed $10,000 in Canadian currency.

In respect of this situation, you have asked whether the remuneration contemplated in subparagraph 2(a) of Article XV of the Treaty would only include income from the exercise of employment in Canada during the period in which the individual was no longer a Canadian resident, with the result that such income would not exceed the safe harbour threshold in that provision and therefore only be taxable in the United States.

Our comments

In respect of Article XV of the Treaty, the Technical Explanation to the 2007 Protocol states that subparagraph 2(a) provides a safe harbour rule that is applied on a calendar year basis, allowing remuneration from employment to avoid taxation in the source country in certain circumstances, including where such remuneration totals $10,000 or less in the currency of that source country. In the case of a resident of the United States, the relevant remuneration for purposes of this safe harbour rule would be that derived by an individual in respect of employment exercised in Canada in a particular taxation year.

Therefore, in the situation that you have described, provided that the individual was determined to be a resident of the United States for purposes of the Treaty pursuant to Article IV, we are of the view that the safe harbour rule in subparagraph 2(a) of Article XV would not exempt any of the individual’s Canadian-source employment income from taxation in Canada as the total amount of the individual’s income from that employment exercised in Canada in the calendar year exceeded $10,000 in Canadian currency.

We do hope these comments will be of assistance.

Yours truly,

Robert Demeter, CPA, CGA
Section Manager
For Director
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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