- Is a corporation resident in Canada?
- Is it carrying on business in Canada?
- a person is resident in Canada, or otherwise
- a person is employed in Canada, carries on a business in Canada, or disposes of a taxable Canadian property.
Who is a Canadian resident?
We must first deal with where persons are deemed to have such status or not:
- s. 250(4) deems any corporation incorporated in Canada after 26 April 1965 to be a Canadian resident, as well as any similar corporation formed before 27 April 1965 that was a Canadian resident or carried on business in Canada.
- if an applicable tax treaty so provides, s. 250(5) will deem a corporation to be resident in the other country and not resident in Canada.
Who carries on business in Canada?
Common law principles govern whether business is carried on, and s. 253 deems certain activities undertaken by a non-resident as constituting such activity. Applicable tax treaties will usually specify that income earned by a non-resident is taxable only where it can be attributable to a permanent establishment.
The most important factor in determining where a business is being carried on is the place where the contract is made. Other factors such as the place of delivery and the place of payment (among others) may also play a role, but the analysis can be quite complicated.
The definition of a permanent establishment is generally left up to the tax treaties, but the following situations can arise:
- a fixed place of business will constitute a PE
- an agent authorized to conclude contracts on behalf of the foreign corporation can also be said to be a fixed place
- in some circumstances, office space made available by a subsidiary to a parents' employees can be a fixed place
- executives who can act on behalf of both a parent and subsidiary are problematic, as their presence in the other country's office can also constitute a PE
- similarly, it can be argued that a foreign corporation that is constantly seeking guidance from a manager in a Canadian parent can be said to possess a Canadian PE
- certain tax treaties (such as the one with the US) can specify that, where services are being provided, days spent in the other country will trigger a PE when the total passes a specified threshold
- there can be other complications, such as in the manner that e-commerce platforms are structured