2015-0582091E5 Northern residents deductions

Principal Issues: Whether an extended absence from a prescribed zone would preclude an individual from qualifying for the northern residents deductions?

Position: See response.

Reasons: See response.

Author: Baltkois, Thomas
Section: 110.7(1)(b)

XXXXXXXXXX
                                                2015-058209
                                                T. Baltkois
October 14, 2015

Dear XXXXXXXXXX:

Re: Northern residents deduction

We are writing in response to your email dated April 8, 2015, concerning whether an individual who is absent from a prescribed zone for medical reasons would qualify for the northern residents deduction provided in paragraph 110.7(1)(b) of the Income Tax Act (Act). In the situation you describe, the individual maintained a principal residence in the prescribed zone prior to, and throughout the absence period.

Our Comments

This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R6, Advance Income Tax Rulings and Technical Interpretations.

The northern residents deductions consist of a deduction for travel benefits under paragraph 110.7(1)(a) of the Act, and a deduction for living costs (the residency deduction) under paragraph 110.7(1)(b) of the Act. These deductions provide relief to those who reside in a prescribed zone and recognize that such individuals are often faced with (among other things) a higher cost of living, environmental hardships, and limited access to services.

The northern residents deductions are generally available when an individual resides in one or more prescribed zones throughout a period of at least six consecutive months commencing or ending in the year (the qualifying period). The prescribed zones include a “prescribed northern zone” and a “prescribed intermediate zone”, which are defined in section 7303.1 of the Income Tax Regulations. For more information about the places located in these zones, go to www.cra.gc.ca/northernresidents.

Generally, an individual must reside in a prescribed zone for six full consecutive months to have a qualifying period for purposes of the northern residents deductions. This requirement can be satisfied even when an individual maintains a residence at another location that is not in a prescribed zone. It is the Canada Revenue Agency’s view that an individual resides at the location that he or she (in mind and fact) settles into, maintains, or centralizes his or her ordinary mode of living (e.g., the place where the individual sleeps, receives mail, and where the individual’s immediate family resides). Thus, it is unlikely that an individual who merely owns a residence in a prescribed zone, or travels there from time to time would be considered to reside at that location. There must be some sense of permanence and routine.

Temporary absences from a prescribed zone (e.g., vacations or temporary work assignments) do not usually affect the continuity of an individual’s qualifying period. In such situations, the individual is still considered to reside in a prescribed zone (for purposes of the northern residents deductions), even while he or she is not physically present in the prescribed zone. Depending on the particular facts and circumstances, it is our view that an extended absence from a prescribed zone may also be considered temporary in nature, and thus, would not generally cause an individual’s qualifying period to be interrupted.

Whether an individual’s particular absence is temporary is a question of fact and would have to be determined on a case-by-case basis. This determination is generally made by the individual at the beginning of the absence. Factors which may suggest that an absence is temporary could include:

*     the individual intended to return to his or her residence when leaving the prescribed zone;
*     the individual actually returned to his or her residence in the prescribed zone;
*     there was a reasonable expectation that the individual would return to his or her residence in the prescribed zone;
*     the individual’s family remained at the residence in the prescribed zone;
*     the individual did not establish another residence outside the prescribed zone, change his or her mailing address, move household effects and belongings, etc.;
*     the individual’s residence in the prescribed zone was available for his or her use throughout the absence period (e.g., the residence was not sold, rented, or otherwise occupied, and was maintained for use at all times during the absence period).

However, the longer the duration of an absence, the more likely the above factors may change and indicate that the absence is no longer temporary. In such cases, an individual should redetermine whether his or her absence is still temporary. From the point in time that the individual reasonably determines that his or her absence is no longer temporary, he or she would not be considered to reside in the prescribed zone for purposes of the northern residents deductions.

We trust these comments will be of assistance to you.

Yours truly,

Nerill Thomas-Wilkinson, CPA, CA
Manager
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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