Should colleague be paying UK PAYE/NI?

[Alcosaint]

A colleague has just moved to Canada for 1 year (from 1 April 2007 to 31 March 2008).

He is still in the employment of the UK registered (& based) company that he has worked for during the last few years but, as a result of the world wide interweb thingy, is able to carry out the duties of his employment in Canada (where he would rather be, for reasons not altogether relevant to this query).

He is unlikely to return to the UK within his 'Canada year' for anything more than a couple of weeks total.

His salary is still being paid into a UK bank account.

Initial reaction is that he is still subject to UK tax - could someone enlighten me (no rush! - I'm just leaving the office!!!)?

[Michael I. Atlas, CA]

I will just answer from a Canadian tax perspective, and let others answer from a UK perspective. Note however that last comment has relevance to UK taxation.

There is no question about the fact that the salary received in 2007 will be subject to Canadian tax. The fact that paid by a non-resident not relevant.

Even if the recipient non-resident then there would still be tax in Canada (not eligible for protection in Article 15(2) because here more than 183 days.

If resident in Canada for tax purposes, then taxable on world income. Under domestic law seems definitely resident (either based on factual residency, in which case partial year tax, or "sojourning" >183 days in which case total year residency).

Would also have to consider "tie breaker" rule in Article 4 of Treaty if UK resident for tax purposes in order to resolve dual residency issue. If permanent residence only in Canada, would be resident here, and should not be subject to UK tax on salary in Canada because not from employment in UK

Michael I. Atlas, CA,CPA,TEP
Practice Restricted To Tax
Toronto, Canada
www.taxca.com

[Alcosaint]

Thanks for the response Michael

Took a look at the Canadian Tax Guide for Non Resident's on your website (which has taught me more than I had learnt in years of studies!)

If you don't mind, could you answer one more thing.....

What's the defnintion of a "permanent" home in 'tiebreaker' (b) on your website (reproduced below...**)

Thanks again

Alistair


**(b) If the individual has a permanent home available to him in both or none of those countries he will be deemed to be resident in the country with which his personal and economic relations are closer ("centre of vital interests");

[Michael I. Atlas, CA]

Thanks for your kind words.

The best answer would be to look at the commentary to the OECD Model Convention which states:

"as regards the concept of home, it should be observed that any form of home may be taken into account (house or apartment belonging to or rented by the individual, rented furnished room). But the permanence of the home is essential; this means that the individual has arranged to have the dwelling available to him at all times continuously, and not occasionally for the purposes of a stay which, owing to the reasons for it, is necessarily of a short duration"

[Alcosaint]

Thanks again Michael

That's been a great help.

Alistair