Section 115

Subsection 115(1) - Non-resident’s taxable income in Canada

Paragraph 115(1)(a)

Subparagraph 115(1)(a)(i)

Cases

Hurd v. The Queen, 81 DTC 5140, [1981] CTC 209 (FCA)

The employment income referred to in s. 115(1)(a)(i) includes stock option benefits that are deemed by s. 7 to have been received by an employee by virtue of his employment.

See Also

Blank v. Commissioner of Taxation, [2015] FCAFC 154, aff'd [2016] HCA 42

no apportionment possible between resident and non-resident services
aff'd on other grounds

The taxpayer was employed by Glencore International AG (“GI”) or a subsidiary from November 1991 to December 2006, with his employment in Australia commencing in 2002 when he also became an Australian resident. In 1994, GI granted him rights to share in future consolidated net income, which initially were labelled as "GIs" and subsequently ((in a replacement agreement) as Profit Participation Units, or “PPUs.” After finding that the "Amount" (totalling U.S.$160 million) paid or to be paid to the taxpayer after his terminiation of employment pursuant to the PPUs was income to him, Kenny and Roberston JJ rejected the taxpayer's alternative argument that the Amount should be apportioned between an exempt and taxable amount based on the respective number of days of foreign and Australian service, stating (at paras. 100, 102, 104):

Section 23AG(1) exempts only foreign earnings derived by a taxpayer from foreign service engaged in by him… .

[N]o part of the Amount can be accurately characterised as earnings “derived … from … foreign service”, as opposed to earnings derived from foreign and Australian service. …

[T]he Amount was incapable of apportionment as between earnings from foreign service, on the one hand, and earnings not from foreign service on the other because the agreed method of calculating that Amount did not allow for that distinction to be made. The Amount was incapable of being calculated on a per diem basis as the appellant proposed. The appellant’s entitlement to the Amount depended on his allocation of vested PPUs…and GI’s profits during particular periods... . The calculation was made irrespective of the days on which the appellant was employed at any particular place. [emphasis in original]

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a) phantom profit participation unit amounts not income until paid by employer rather than when due 700
Tax Topics - General Concepts - Payment & Receipt payments under phantom units not received when they vested 308

Mullen v. The Queen, 2012 DTC 1154 [at 3358], 2012 TCC 139 (Informal Procedure)

The taxpayer's exercise of stock options while he was resident in China gave rise to taxable income in Canada because he had received those stock options while he was a Canadian resident in the course of his employment there.

Price v. Canada, 2013 DTC 5024 [at 5615], 2012 FCA 332, aff'g 2011 DTC 1334 [at 1879], 2011 TCC 449

The taxpayer was a Barbados-resident Canadian citizen who worked as a pilot for Air Canada. His pay was based predominantly on flight time. He calculated his income from employment performed in Canada on the following bases:

  • 10% of the income earned on flights between Toronto and Vancouver, based on a purported 90% of flight time spent in U.S. airspace.
  • A percentage on Canadian international flights based on the ratio of the time spent in Canadian airspace to the total time, flying or not, between embarking and disembarking in Canada. (The taxpayer claimed that he was responsible for managing his craft while out of Canada, and that sleep was a part of his obligations.)
  • 0% of all other income, including training and disability payments.

McArthur J rejected the taxpayer's income allocations. Air Canada paid its pilots based on flight time, and therefore the Minister's allocation of the taxpayer's duties based on flight time was more reasonable than the taxpayer's allocation based on total time spent abroad. Affirming that finding, Mainville JA stated (at para. 25):

The appellant has failed to show why we should disregard the method set out in the collective agreement [between Air Canada and its pilots] in order to favour a method which is largely based on non-remunerated wait time and layover time.

The 90% allocation of Toronto-Vancouver flight time to US airspace was not credible. Lacking any better method, McArthur J adopted the allocations arrived at in Sutcliffe, which used Air Canada's average flight path and took the percentage of the path length in U.S airspace - 49% for Toronto to Vancouver, and 31% for the return trip. This method assumed a constant air speed and no deviation from the standard flight path, and the taxpayer cast doubt on both assumptions. However, no better method was established.

In affirming that, in accordance with Sutcliffe, the disability payments should be allocated in the same proportion as flight income, Mainville JA stated (at para. 33):

The fact that subparagraph 115(1)(a)(i) refers to incomes from duties or offices and employments performed by the non-resident persons in Canada does not exclude from the scope of that paragraph the benefits and amounts referred to under subsection 6(1) of the Act. Rather, the words "duties" and "performed" are simply used in this context to distinguish between incomes earned from offices or employments in Canada from those earned outside Canada.

Sutcliffe v. The Queen, 2006 DTC 2076, 2005 TCC 812

The taxpayer was a U.S. resident who was employed by Air Canada as a pilot on domestic flights (between Toronto and other Canadian cities) and international flights (between Toronto and U.S. cities). His income from performing or exercising his employment in Canada was to be determined by reference to the estimated portion of his flights that occurred in the U.S. (including domestic flights that traversed U.S. airspace). Sickness and vacation pay, which should be viewed as part of his remuneration, should be apportioned on the same basis.

Austin v. The Queen, 2003 DTC 2181, 2004 TCC 6

A non-resident Canadian Football League football player was entitled to have the portion of his employment income that was not subject to Canadian income tax calculated on the basis of the ratio of games played in Canada to the number of games played both in Canada and the United States, rather than on the basis of the number of days spent in the respective jurisdictions in the course of his employment, given that his employment contract provided that he would be paid only for games played (with the exception of token amounts received for a training camp), unless he did not play because of a game injury.

Varnam v. Deeble, [1985] BTC 150 (C.A.)

In determining the level of employment income "attributable to duties performed outside the United Kingdom", reference should be had to the amount allocated to overseas employment by the taxpayer's employment contract. If there is no allocation in the contract, then an apportionment generally should be made on the basis of the number of days spent abroad performing his duties. [C.R.: 126(1)]

Administrative Policy

21 February 2018 External T.I. 2017-0702061E5 - RCA contributions and taxable inc earned in Canada

s. 6(1)(a)(ii) exclusion for employer RCA contributions was effectively allocated between Cdn and US employment income of an athlete

A Canadian professional sports team has established an RCA for the benefit of an athlete employee under which each required employer contribution reduces the salary otherwise payable to the athlete. Upon retirement or loss of employment from the team, the athlete receives a lump sum payment from the RCA equal to the value of the RCA’s assets. The RCA is intended to defer taxation of the amount contributed by the team to the RCA until it is distributed from the RCA to the athlete (who is a non-resident) and subjected to Part XIII tax of 25%. The athlete’s salary is attributable 40% to Canada and 60% to the U.S. (where many of the games are played). The athlete’s $2 million annual compensation is paid as to $1.2 million in salary and $800,000 as RCA contributions by the team. Can the employer contributions be deducted entirely from the Canadian employment income so as to result in nil income under s. 115(1)(a)(i) ($2 million x 40% - $800,000)? CRA responded:

[A]ny amounts that the team contributes to the athlete’s RCA are excluded from the calculation of employment income by virtue of subparagraph 6(1)(a)(ii) and therefore never enter into the calculation for the purpose of subparagraph 115(1)(a)(i). The athlete’s employment income … is $1.2 million, of which 40% is allocable to Canada. Accordingly, $480,000 is included in the athlete’s taxable income earned in Canada … .

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 8 - Subsection 8(1) - Paragraph 8(1)(m.2) no deduction permitted where plan provided only for a lump sum payment or where it was excluded from SDA treatment by para. (j) (re athletes) 195
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a) - Subparagraph 6(1)(a)(ii) s. 6(1)(a)(i) exclusion applied first before s. 4 allocation of income between Canada and U.S. 144

16 June 2014 External T.I. 2013-0515431E5 - International traffic and airline enterprise

application of Sutcliffe/Price allocation approach were s. 115(3) not applicable

During peak season, Canco, which transports passengers to destinations inside and outside Canada, is supplied planes and non-resident pilots and crew by an arm's length U.K. resident ("Forco") who is the pilots' and crew's employer, to transport Canco's passengers. In finding that s. 115(3) did not apply to the non-resident pilots employed by Forco (i.e., they were not "indirectly" employed by a Canadian airline), CRA stated:

[P]ilots employed by a non-resident airline corporation will generally not be subject to this measure. …[but] the taxable income earned by a non-resident from an office or employment exercised in Canada must nevertheless be computed for purposes of…subparagraph 115(1)(a)(i). ..[T]he attribution of income to Canada must be reasonable and may be based on the allocation methods provided in Sutcliffe v. The Queen, 2006 TCC 812 and Price v. The Queen, 2011 TCC 449.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 115 - Subsection 115(4) non-resident's provision of crew and aircraft to Canadian airline 140
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - International Traffic non-resident's provision of crew and aircraft to Canadian airline 103
Tax Topics - Income Tax Act - Section 81 - Subsection 81(1) - Paragraph 81(1)(c) non-resident's provision of crew and aircraft to Canadian airline 103
Tax Topics - Income Tax Regulations - Regulation 102 - Subsection 102(1) Reg. 102 withholding or waiver notwithstanding Treaty exemption 162
Tax Topics - Treaties - Income Tax Conventions - Article 15 U.K company's provision of crew to Canadian airline/Reg. 102 withholding or waiver notwithstanding Treaty exemption 285

10 December 2012 External T.I. 2011-0429721E5 F - OETC - Employee stock options benefits

s. 7(1)(a) benefit generally relates to duties performed in the grant year

A resident employee, who exercises employee stock options a few years after their grant by the corporate employer, performed duties both in Canada and abroad at the time of the granting and/or exercise of the options. In the context of the overseas employment tax credit which, in s. 122.3(1)(a) referenced the individual’s income for a year from employment from duties performed outside Canada, CRA was asked whether the s. 7(1)(a) benefit qualify in part or in full for OETC purposes? CRA responded:

Whether, in a particular situation, the amount of the employment benefit calculated under paragraph 7(1)(a) relates to duties performed outside Canada during a qualifying period under section 122.3 is a question of fact ... . However, the CRA's long-standing position is that … the amount of the employment benefit calculated in paragraph 7(1)(a) generally relates to the duties performed during the year in which stock options are granted unless the facts, circumstances and relevant documents clearly demonstrate that the options were granted to compensate for future services.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 122.3 - Subsection 122.3(1) - Paragraph 122.3(1)(d) s. 7(1)(a) benefit apportioned based on Canadian and overseas duties performed - generally in year options issued 150

25 September 2012 B.C. Canadian Tax Foundation Roundtable, 2012-0459411C6 - Allocation of cross-border employee stock options

Formerly, CRA generally had presumed for purposes of applying the domestic provisions of the Act (s. 115(1)(a)(i)) that an employee stock option benefit is in respect of employment exercised by the employee in the year in which the option was granted for purposes of determining the portion of the stock option benefit which was attributable to the exercise of Canadian employment of the optionee.

However, for stock options exercised after 2012, the CRA will apply the principles set out in para. 12 to 12.15 of the OECD Commentary on Article 15 to allocate a stock option benefit for purposes of the Income Tax Act, unless an income tax treaty otherwise specifically applies. Under these principles, the stock option benefit typically will be allocated based on the number of days of employment exercised in Canada during the vesting period compared to the total number of days of exercise of employment during that period.

6 July 2012 Internal T.I. 2012-0440741I7 - stock option benefit derived by US resident

USCo, which is a qualifying person for purposes of the Canada-US Income Tax Convention and is a wholly-owned subsidiary of a Canadian public company, employed a US-resident individual and performed employment duties for USCo in Canada for 55, 100 and 75 days in 2009, 2010 and 2011, respectively. On January 1, 2009, the US employee was granted stock options by Canco in consideration for his duties of employment performed for USCo and, when the options were exercised, USCo paid Canco a sum equal to the in-the-money value of the options at the time of such exercise.

Before considering the effect of the Canada-US Convention, CRA stated that

Canada's default position regarding the allocation of the stock option benefit is that a stock option benefit is allocable to the services rendered in the year of grant, unless it is clear from the circumstances that some other period is more appropriate, and vesting is not relevant.

Accordingly, if in 2009, the employee worked 55 days in Canada out of a total of 315, and he realized a benefit of $20,000 when he exercised the options on December 31, 2010, CRA would consider 55/315 of that benefit to be taxable in Canada in 2010.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 153 - Subsection 153(1) - Paragraph 153(1)(a) employer reimburser of stock option benefit amount subject to withholding obligation 340
Tax Topics - Treaties - Income Tax Conventions - Article 15 U.S. subs qualifies as payer of (therefore exempt) stock option benefit/domestic v. Treaty method 394

7 May 2009 External T.I. 2008-0276181E5 - Stock Option Benefits

a US-resident individual who is a director of a Canadian public corporation, who receives retainer fees in excess of $10,000 annually and who is expected to attend quarterly meetings of the board of directors in Canada will be required to include the amount of the benefit on exercise of the options in his income by virtue of ss. 7 and 1115(1)(a)(i), and will be entitled to the s. 110(1)(d) deduction where the usual conditions are satisfied. Where the individual's services are exclusively performed in Canada, the entire benefit will be sourced to Canada based on the allocation method set out in Annex B to the 5th Protocol to the Canada-US Convention. The amount of the required withholding (based on graduated rates) can take the s. 110(1)(d) deduction into account.

4 December 2003 External T.I. 2001-01177 -

Where rights under a share appreciation rights plan are granted while an employee is resident in Canada, but redeemed when the employee is a non-resident, the portion of the SAR benefit that is attributable to services rendered in Canada (or outside Canada if the employee was resident in Canada at that time) is "taxable income earned in Canada" to the non-resident.

19 January 2001 External T.I. 2000-005840 -

"Generally, the stock option benefit relating to the options granted to an individual while he or she is employed by a foreign employer while the individual was resident and employed only in a foreign country that were exercised after the individual ceased to be resident in Canada will not be included in the individual's income under subparagraph 115(1)(a)(i) of the Act because the entire stock option benefit is considered to be attributable to the individual's duties of employment performed in the foreign country for the foreign employer in the year the stock option was granted."

28 May 1996 TI 9601625

"Where the duties of a particular office or employment are performed partly in Canada and partly outside of Canada, a reasonable apportionment of the related income is necessary. This apportionment is usually calculated on a per diem basis having regard to the rate of remuneration applicable at that time."

1996 Ruling 962639

RC declined to rule that a non-resident director's fees could be allocated to Canada only to the extent of the number of days worked in Canada divided by the number of days in the year.

2 December 1993 T.I. 933330 (C.T.O. "Non-Resident Exercise Stock Option (4093-U5-100-15)"

Where a U.S.-resident was employed for several years by a wholly-owned Canadian subsidiary of a U.S. public company and in the course of his employment was granted stock options to purchase shares of the U.S. parent, a stock option benefit realized by him when exercising the options after he ceased to be employed and resident in Canada would be taxable in Canada as though he were still an employee of the Canadian subsidiary.

Locations of other summaries Wordcount
Tax Topics - Treaties - Income Tax Conventions - Article 15 214

13 June 1991 T.I. (Tax Window, No. 4, p. 28, ¶1299)

Disability payments received by a U.S. resident under a disability policy maintained by his former employer will be subject to Canadian tax if the disability insurance premiums related to employment in Canada, irrespective whether the duties of employment to which the payments related were performed in a previous year.

12 September 1990 T.I. (Tax Window, Prelim. No. 1, p. 18, ¶1015)

A non-resident director of a Canadian corporation who exercises his stock option is taxable under s. 7(1) to the extent that the granting of the stock option related to services performed in Canada, and the Canadian corporation would have an obligation to file a T4 Supplementary.

81 C.R. - Q.56

The territorial source of employment income is the place where the related duties are normally performed.

IT-420R3 "Non-Residents - Income Earned in Canada"

IT-168R3 "Athletes and Players Employed by Football, Hockey and Similar Clubs" under "Non-Residents"

Articles

Tobias, "Taxing Benefits Realized by Former Canadian Residents", Taxation of Executive Compensation and Retirement, March 1994, p. 889

The author argues that Canada has no right to tax the benefit resulting from the exercise or realization of employee stock options on shares of non-Canadian corporations with no connection to Canada if such options are exercised after the employee has departed Canada and has established residence in a treaty jurisdiction and the individual is present in Canada in the year of exercise or realization for less than 183 days.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 7 - Subsection 7(4) 69

Finley, "Non-Resident Directors' Fees May Be Subject to Withholding in Canada", Taxation of Executive Compensation and Retirement, October 1990, p. 348

RC has acknowledged that where a non-resident director participates in a meeting held by teleconference call, his fees are not income from duties performed inside Canada.

Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Regulation 101 65

Subparagraph 115(1)(a)(ii)

Cases

Inter-Leasing, Inc. v. Ontario (Revenue), 2014 ONCA 575

holding intercompany loans was not a business, corporate objects presumption not applied

In order to minimize Alberta corporate tax, the Precision group of companies reorganized, as a result of which:

  1. Interest-bearing debts were owing by them to a newly-incorporated company ("Yukon");
  2. Yukon owed equivalent interest-bearing debts to the taxpayer, which had been incorporated in the British Virgin Islands but had an Ontario-resident director, and had an Ontario permanent establishment by virtue of making a small investment in an Ontario LP (see 2000-0048685) and was a group subsidiary; such debts were in the form of deeds of specialty debt, which were physically transferred to the British Virgin Islands - this was done to avoid Ontario corporate minimum tax which, under the Corporations Tax Act s. 47(2)(b)(ii), applied only to "property situated in Canada;"
  3. The taxpayer channeled the interest income received by it (net of federal tax) back to Precision by a combination of inter-corporate dividends (eligible for the inter-corporate dividend deduction under ITA s. 112 as the taxpayer was a controlled corporation resident in Canada) and interest-free loans.

As a corporation incorporated outside Canada but with a permanent establishment in Ontario, the taxpayer was subject to tax under s. 2(2) of the Corporations Tax Act, but only on income from business, not income from property.

In finding that the interest income of the taxpayer was exempt as income from property, Pardu JA stated (at para. 35) "that the level of activity associated with the once annual payment of interest on each of the four specialty debt instruments does not make this interest income from business," and (at para. 42) that "there was no other business in which income from the specialty debt instruments was employed or risked." Furthermore, the rebuttable presumption articulated in Marconi – that income earned by corporations acting consistently with their objects is income from a business – was not helpful here as "presumably corporations will act within their objects [and] the legislative scheme expressly contemplates a corporation earning income from property." (Para. 32.)

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) underlying rationale for exempting property income was no broader than the text 383

See Also

Resource Capital Fund IV LP v Commissioner of Taxation, [2018] FCA 41 (Federal Court of Australia)

gains of a NR PE fund from disposals of Australian share investments that were managed in part in Australia were derived from Australia

Two Caymans investment LPs (“RCF IV” and RCF V”) whose limited partners were mostly U.S. residents, realized gains from the disposal of shares of significant shareholdings in a TSX-listed Australian corporation (Talison Lithium) which, through a grandchild corporation, held mining leases in Australia and carried out an operation there of mining lithium ores and processing them. The significant gains realized by RCF IV and RCF V in disposing of these investments consistently with their modus operandi which was (per the oral evidence) to “go in, make the investment, improve the performance of the company concerned and then seek to exit within three to six years after that time, having made a profit” (para. 32) were realized on income account. In further finding that such gains were income derived from an Australian source, Pagone J first noted (at para. 52) the RCF LPs’ submissions that significant decisions were made outside Australia by the general partner’s investment committee and that the manager was outside Australia, and then stated (at para. 53):

The fact that the business and assets were in Australia might not of itself be sufficient to make Australia the ultimate source of the gain derived upon the disposal of the shares, but the location in Australia of the business and assets, and the nature and extent of the business and assets, occasioned substantial activities in Australia that were an integral part of the investment, its management, and its ultimate profitable disposal. …

An element of the investment strategy of the RCF IV and RCF V partnerships was for members of the RCF Management team to occupy positions on boards of the companies in which RCF invested to guide management and to contribute to an increase in the value of the investments which were intended to be sold at a profit. That function was performed by employees in the Perth office … .

Respecting the statutory reference to income derived “directly or indirectly,” he stated (at para. 51):

The Commissioner submitted that the phrase directs attention “not merely to the proximate origin of the income, but also to those acts or matters which constitute contributory causes to the generation of income”, however, the adverbial phrase quantifies the word “derived” in the section rather than the word “source”. It can be accepted that non-proximate contributory causes may be relevant to ascertain the source of derivation but the adverbial phrase does not lessen or reduce the need to find that that which was derived was from an Australian source.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 9 - Capital Gain vs. Profit - Shares private equity fund LP with 5-year holding objective realized share gain on income account 167
Tax Topics - Treaties - Income Tax Conventions - Article 3 each U.S.-resident partner of a Caymans PE LP carried on a U.S. “enterprise” 222
Tax Topics 386
Tax Topics - Treaties - Income Tax Conventions - Article 13 exclusion in Art. 13 of Aust.-U.S. Treaty for real property dispositions extended to shares of Australian holding company holding mining leases through grandchild
Tax Topics - General Concepts - Stare Decisis lower court not bound by a point of law that was assumed rather than examined by a higher court 272
Tax Topics - Income Tax Act - Section 152 - Subsection 152(1) assessment of partnership was assessment of partners 83
Tax Topics - Treaties - Income Tax Conventions - Article 6 Art. 6 extends common law meaning of real property 180
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Taxable Canadian Property - Paragraph (d) shares of lithium mining and processing company were derived principally from the processing rather than mining operation and, thus, were not taxable Australian real property 500
Tax Topics - Income Tax Act - Section 218.3 - Subsection 218.3(1) - Canadian Property Mutual Fund Investment shares of Australian mining company were primarily attributable to the processing rather than mining operations 140
Tax Topics - General Concepts - Fair Market Value - Other processing assets of mining company were more valuable than its mining assets 234

Maya Forestales S.A. c. La Reine, 2005 DTC 514, 2005 TCC 66, aff'd 2008 DTC 6100, 2006 FCA 35

sales in Canada were indivisible whole

The taxpayer was found to be carrying on business in Canada on the basis that through a Canadian mandatory it offered for sale, in Canada, Costa Rican plantation lots and solicited orders for services to be provided by it in connection with the sold lots, with each investor paying an overall amount in connection with the transactions which constituted an "indivisible whole" (p. 519). Although s. 115(1)(a)(ii) required a reasonable allocation of revenue and deductions, the Minister had assessed on the basis that all the revenues and expenses were applicable to Canada, and the appellant had provided no evidence of any kind whatsoever that would permit the allocation of a portion of the revenues and expenses to Costa Rica.

Commissioner of Inland Revenue v. Kwong Myle Services Ltd. (2004), 7 ITLR 239 (HK CFA)

profits from apartment sales in jurisdiction where marketed

The taxpayer (a company incorporated in Hong Kong) underwrote the sale of apartment units in a building erected in mainland China pursuant to an underwriting agreement entered into in China. Because the marketing of the apartments took place in Hong Kong, and all but two of the apartments were sold to Hong Kong purchasers, the profits of the taxpayer were found to arise in Hong Kong.

Twentieth Century Fox Film Corp. v. The Queen, 85 DTC 5513, [1985] 2 CTC 328 (FCTD)

business conducted through agent/film distribution in Canada (without production) was Cdn business

Before finding that film revenues of the U.S. taxpayer were reasonably attributable to its Canadian distributorship business notwithstanding they were also attributable to U.S. movie production, so that they would be exempted under Reg. 805 from Part XIII tax, Addy J stated:

Its film distribution activities and the advertising activities and public relations promotions connected with them are the equivalent of the sales and the sales promotion activities of a manufacturer who produces goods for sale. The distribution of the product results in the generation of income and profits which of course is the ultimate goal of the entire undertaking. ... Therefore, this is not the case of a US firm being engaged in business dealings in Canada, promoted, controlled and carried out entirely from the United States without a branch or organization in Canada.

And further stated:

The fact that a company chooses to have certain of its business activities carried out by agents does not of itself prevent those activities from being the business operations of the company.

See summary under Reg. 805.

Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Regulation 802 170
Tax Topics - Income Tax Regulations - Regulation 805 film revenues were reasonably attributable to a Canadian distributorship business notwithstanding they were also attributable to U.S. movie production 187

Yates v. GCA International Ltd., [1991] BTC 107 (Ch. D.)

petroleum consulting income rose only partly in field

In accepting a finding of the Commissioners that the income earned by a U.K. petroleum consulting firm from work done pursuant to a contract with a Venezuelan company for the "rehabilitation investigation" of three Venezuelan oil fields arose partly in the U.K. and partly in Venezuela, Scott J. stated (p. 123):

"What conceptually or from a linguistic point of view is the matter with regarding remuneration from a contract with an international complexion as producing income which ... can be regarded as arising partly in one country and partly in another?"

CIR v. Hang Seng Bank Ltd., [1990] BTC 482 (PC)

situs of trading business was where trades occurred

The gains realized by a Hong Kong bank from the purchase and resale outside Hong Kong of certificates of deposit, bonds and gilt-edged securities were correctly found by the Commissioners not to be "profits arising in or derived from Hong Kong" from carrying on a trade or business in Hong Kong. The activities of the bank from which the income arose was the buying and selling of the securities in overseas markets and not the decision-making process in Hong Kong. Lord Bridge stated (p. 488):

"If [the taxpayer] has rendered a service or engaged in an activity such as the manufacture of goods, the profit would have arisen or derived from the place where the service was rendered or the profit making activity carried on. But if the profit was earned by the exploitation of property assets [such] as by letting property, lending money or dealing in commodities or securities by buying and reselling at a profit, the profit will have arisen in or derived from the place where the property was let, the money was lent or the contracts of purchase and sale were effected."

Furness Withy & Co. Ltd. v. MNR, 66 DTC 5358 (Ex Ct), aff'd 68 DTC 5033, [1968] CTC 35, [1968] S.C.R. 221

deduction of head office expenses

The Canadian branch office of the taxpayer, which was a U.K.-resident company earning profits from international shipping conducted by itself and its subsidiaries, earned income from servicing the shipping activities of the subsidiaries and third parties, e.g., providing stevedoring services and booking cargo. Thurlow J. found that in computing the Canadian branch profits, the taxpayer was entitled to deduct head office administrative expenses that were applicable to those profits, stating (at p. 5307):

[W]here the business of the non-resident company is carried on both in Canada and elsewhere some proportionate part of the general expenses incurred in carrying on the business in more than one country including Canada would ordinarily be attributable to the portion of the business carried on in Canada and be deductible on ordinary principles... .

United Geophysical Co. of Canada v. MNR, 61 DTC 1099 (Ex Ct)

U.S. equipment rentals not attributable to Canadian services

The U.S. parent of the taxpayer rented equipment to the taxpayer for use by the taxpayer in its Canadian operations. Although the U.S. parent was considered to be carrying on a business in Canada, i.e., providing various administrative, supervisory and other services to the taxpayer at cost, the rents received by it could not reasonably be attributed to any part of the business which it carried on in Canada. The rental agreements were made in the United States, rentals started when the equipment left California, delivery of the equipment to the taxpayer took place in the United States, and payment was received in the United States. Accordingly, as the rental payments were revenues of a business carried on instead in the U.S., the withholding tax exemption in Reg. 805 was not available.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Agency company's business not carried on as agent for shareholder 148
Tax Topics - Income Tax Act - Section 212 - Subsection 212(1) - Paragraph 212(1)(d) 100

Commissioner for Inland Revenue v. Nell (1961), 3 S.A. 774 (A.D.)

allocation to field work

The taxpayer, who was a consulting electrical and mechanical engineer practising in Johannesburg, visited project sites in Rhodesia for the purpose of ascertaining the precise requirements of the clients, advising them and preparing rough sketches, and then returned to Johannesburg where the plans for the electrical and mechanical installation work were prepared. Hoexter J.A. affirmed a factual finding that s. 9(1)(b) of the Income Tax Act, 31 of 1941 did not apply to the portion of his fees allocated to the work performed in Rhodesia. This provision provided that "an amount shall be deemed to have accrued to any person from a source within the Union, whenever it has been received by or accrued to or in favour of such person by virtue of ... any service rendered ... by such person in the carrying on in the Union of any trade ...".

International Harvester Co. of Canada, Ltd. v. Provincial Tax Commission, [1949] A.C. 36 (PC)

apportionment between manufacturing and selling

The taxpayer, which was an Ontario corporation engaged in the business of manufacturing and selling agricultural implements, carried on its manufacturing operations exclusively outside Saskatchewan while selling operations occurred partly in that province and partly in other provinces and countries. Any part of the taxpayer's net profit which might fairly be attributed to its manufacturing operations outside Saskatchewan, was found not to be profit arising from the business of the appellant inside Saskatchewan within the meaning of the Income Tax Act, 1932 (Saskatchewan).

Federal Commissioner of Taxation v. United Aircraft Corp. (1943), 7 A.T.D. 318 (HC)

provision of knowhow in the US to Australian company not carrying on business in Australia

An American manufacturer of airplanes purported to license its rights to use Australian patents and registered designs to an Australian company in consideration for a lump sum of $25,000 and further sums based on the number of aircraft engines manufactured by the Australian licensee. In fact, the American company did not own any Australian patents or any designs registered in Australia. The drawings of specifications were delivered in New York. Six technicians from the Australian company were to visit the American factory for the purpose of obtaining information and the American company further agreed to give the Australian company pertinent information and advice.

In finding that the American company was not subject to tax on income "derived directly or indirectly from all sources in Australia" in respect of this agreement, Latham C.J. found (at p. 321) that "the agreement was in reality an agreement for the communication of information which would facilitate the manufacture of the engines in Australia", that the knowledge so communicated did not represent property and (at p. 322) that "a person who neither owns anything in a country nor does nor has done anything in that country cannot ... derive income from that country".

Watson v. Commissioner of Taxation (W.A.) (1930), 1 A.T.D. 61 (HC)

preliminary lobbying was not effective cause of services income

The taxpayer, while practising as a public accountant in Western Australia, agreed with the client that if the taxpayer were able to secure a remission of taxes assessed on the client, the taxpayer would be entitled to a portion of the remission as his commission for those services. The taxpayer then closed his office in Perth, went to Melbourne in order to lobby for a legislative amendment and, following the passage of a favourable amendment, returned to Western Australia to apply for and obtain the remission. In finding that the fees were taxable pursuant to s. 30(3) of the Land and Income Tax Assessment Act, 1907-24 (Western Australia), the High Court noted that neither of the Courts below had been satisfied that the taxpayer's lobbying effort in Melbourne was the effective cause of his obtaining the remission, and that, instead, he earned his commission by applying for and obtaining the remission while in Western Australia. The Court also noted that "the place where those earnings [sic] occur which directly gave rise to income must be regarded rather than the place or places where remoter causes exist" (p. 67).

Administrative Policy

7 June 2017 CPTS Roundtable, 2017-0695131C6

Q.4 - by analogy to mining, hydrocarbons may be similar properties

What positions has CRA taken regarding when specific oil and gas production activities form part of the same business for s. 111(5) purposes and regarding when specific oil and gas production businesses would be similar to one another?

CRA noted that in 9234795, a taxpayer operated oil or gas wells in one province prior to an acquisition of control and then acquired new oil or gas wells in another province after the acquisition of control. It suggested that the new oil or gas wells would be considered to be a different business, but it stated that the place of production will not by itself determine whether the same business is conducted after the acquisition of control, and its focus was on the “similar properties” test in s. 111(5), as to which it stated that oil or gas from wells located in different provinces would be considered to be a “similar property.”

CRA stated:

To our knowledge, the CRA has not taken a position on whether a particular type of hydrocarbon is similar to a different type of hydrocarbon in the context of subsection 111(5). However, in technical interpretation 9314945, the CRA opined that where a corporation carries on the business of mining and selling metallurgical coal as well as the business of mining and selling other minerals, income therefrom will be considered to be derived by those businesses from the “sale, leasing, rental or development…of similar properties” for the purposes of subparagraph 111(5)(a)(ii) provided that the other conditions in paragraph (a) are met. The same document confirms the CRA’s view that “similar” is to be interpreted narrowly, stating, “In our view, the word “similar” in the context of subsection 111(5) of the Act has a narrower meaning than “having characteristics in common” and should be interpreted as “of the same general nature or character”. This interpretation is based on the case of Barnwell Consolidated School District No. 15 v. Canadian Western Natural Gas, Light, Heat & Power Co. ((1922) 69 DLR 401 (Alta SC (AD)).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 13 - Subsection 13(21) - Proceeds of Disposition Q.1 - Daishowa extends beynd reforestation and reclamation obligations only on a case-by-case basis 199
Tax Topics - Income Tax Act - Section 66 - Subsection 66(15) - Canadian Resource Property - Paragraph (d) Q.2 - a Canadian resource royalty interest requires a right to “take production” 129
Tax Topics - Treaties - Income Tax Conventions - Article 13 Q.3 - Canada-U.K. Treaty does not exempt shares deriving their value from Canadian oil and gas licences – even where the Canadian business is carried on “in” them 185
Tax Topics - Income Tax Regulations - Regulation 1101 - Subsection 1101(1) Q.5 - normal course dispositions of oil and gas properties generally are not of a separate business 123
Tax Topics - Income Tax Act - Section 4 - Subsection 4(1) Q.5 - application of Scales test to determining whether there is a separate business 205
Tax Topics - Income Tax Regulations - Schedules - Schedule II - Class 26 Q.7 - refinery catalysts are Class 26 property 81
Tax Topics - Income Tax Regulations - Schedules - Schedule II - Class 49 Q.8 - taxpayers generally have the documentary evidence on hand to allocate costs between pipelines and pipeline appendages 111

19 June 2015 External T.I. 2013-0475751E5 - Withholding Tax on Royalty Payments

situs of business

In response to what CRA treated as a general inquiry, it referenced the question of whether the non-resident company (which received royalties from digital shows in Canada as well as selling products to Canadian residents and providing services to them) was carrying on business in Canada, and stated:

For guidance regarding factors to consider when determining where a particular business (or a part of the business) is carried on, see paragraphs 1.52-1.56 of S5-F2-C1: Foreign Tax Credit... .

5 February 2014 External T.I. 2012-0466671E5 - Non-resident source withholdings

situs of services business

Canco will pay a fee to an India partnership providing technical support based on a percentage of the total technical support fee revenues to be collected by Canco from its customers located in Canada and the U.S. In providing general comments on whether the non-resident members of the partnership may be considered to carry on business in Canada, CRA stated:

[I]n the case of a service business, the business would generally be considered to be carried on at the place where the services are performed.

S5-F2-C1 - Foreign Tax Credit

1.53 While a determination of the place where a particular business (or a part of the business) is carried on (that is, the location of the source of the business income...) necessarily depends upon all the relevant facts, such place is generally the place where the operations in substance, or profit generating activities, take place. For the following particular types of business, the following factors (among others) should be given consideration:

  • development and sale of real or immovable property – the place where the property is situated;
  • merchandise trading – the place where the sales are habitually completed, but other factors, such as the location of the stock, the place of payment or the place of manufacture, are considered relevant in particular situations;
  • transportation or shipping – the place of completion of the contract for carriage, and the places of shipment, transit and receipt;
  • trading in intangible property, or for civil law incorporeal property (for example, stocks and bonds) – the place where the purchase or sale decisions are normally made;
  • money lending – the place where the loan arrangement is in substance completed;
  • personal or movable property rentals – the place where the property available for rental is normally located;
  • real or immovable property rentals – the place where the property is situated; and
  • service – the place where the services are performed.

1.54 Other factors which are also relevant, but generally given less weight than the factors listed above include, but are not limited to:

  • the place where the contract for the sale of property or the provision of services is formed or entered into;
  • the place where payment is received;
  • the place where assets of the business are located; and
  • the intent of the taxpayer to do business in the particular jurisdiction.

1.55 In the case of a single business comprised of more than one of the above-mentioned activities, each activity is considered separately for purposes of determining in which country or countries the business is carried on (this situation should not be confused with the situation in which the taxpayer has separate businesses—see Interpretation Bulletin IT-206R, Separate businesses). If, however, one activity of a business is clearly incidental to a predominant one, the incidental activity is not considered when determining in which country or countries the business is carried on. For example, if a vendor of machinery provides customers with an engineer to supervise the installation of the machinery, this service would generally be considered to be incidental to the activity of selling the machinery; however, this type of service could in some cases be considered to be a significant activity on its own, depending on the machinery being sold, the nature of the installation service, and the terms of the contract with the customer.

11 January 2001 Internal T.I. 2000-0001017 - Sourcing of income & foreign tax credit

place of contract not primary determinant

The Directorate agreed that the taxpayer, which was a Canadian manufacturer transferring some of its goods to a Japanese branch for sale there, was overstating its profits for purposes of s. 126(2), by treating most or all of the profits on the sale of such products as being profits of the Japanese branch. The taxpayer was required to follow the same method it used to compute its net foreign business income under the Japanese Treaty (namely, computing a notional cost of sales based on an arm's length value of the goods "sold" by the manufacturing division in Canada) as this gave a truer picture of the profits earned in Japan by the Japanese branch.

In reaching this conclusion, CRA stated that it disagreed with the taxpayer's position that "the place of contract is the primary determinant of where business is carried on," and stated:

Under Common Law principles, a business is generally considered to be carried on in the place where the operations from which the profits arise are located. The weight given to any particular factor to determine this place depends on the nature of the business. One factor is the place of manufacture or production. Another factor which is indicative of the location of a business is the place where the business' profit-producing contracts are made (based on old case law such as Grainger v. Gough (Surveyor of Taxes) [1896] A.C. 325 (H.L.) and Firestone Tyre v. Lewellin (HM Inspector of Taxes) (1957), 37 TC 111)). For example, in Twentieth Century Fox Film Corporation, 85 DTC 5513 (FCTD), the court did not put much weight on where the contracts were made.

2005 Ruling 2004-0094821R3 - Carrying on Business in Canada

Canadian back-office work for non-resident fund

Ruling given that the expansion of services provided by a Canadian corporation ("Canco") to its affiliated non-resident administrator of investment funds (the "Funds") including processing subscriptions, transfers and redemptions and handling related correspondence, processing distributions, conducting anti-money laundering due diligence, publishing the NAVs, disbursing fees, maintaining a register of shareholders, dispatching shareholder meeting materials and audited financial statements, and providing various "middle office" accounting assistance, would not cause the Funds or the Administrator to be carrying on business in Canada for purposes of ss. 2(3)(b) and 115(1), or Part XIV. The statement of facts indicate that no resolutions will be passed by the Administrator or the Funds to appoint Canco as agent, "the various contracts entered in by Canco in the course of carrying on its business in Canada will create rights and obligations that are personal to Canco vis-à-vis the third parties", Canco will have limited contact with the investors in the Funds and "in particular, Canco does not and will not handle the receipt of monies paid by investors upon the investors' subscription for interest in the Funds" and "subscriptions are accepted or rejected by the Funds, not by Canco or the Administrator".

2004 Ruling 2004-008266 -

back office functions in Canada not Canadian business

Ruling that the delegation by a non-resident service provider ("C Limited") to a non-resident investment fund (the "Fund") of accounting and valuation services (e.g., preparing books and records and financial statements, computing NAV each month and calculating redemption amounts and distributions) and investor services (including maintaining a register of investors, processing subscriptions, redemptions and transfer requests, monitoring compliance with anti-money laundering rules, maintaining capital accounts, and mailing or emailing periodic statements to investors) to a related Canadian corporation ("Canco") where "Canco will have no right to directly affect the legal relations of C Limited as regards to other persons and will have no authority to make contracts on behalf of C Limited" will not result in the Fund or C Limited carrying on business in Canada for purposes of ss. 2(3)(b), 115(1) or Part XIV. In the summary, CRA stated that "a business is carried on where the profit producing activity takes place and the profit producing activity of the Fund and the non-resident service provider are not in Canada".

19 April 2000 External T.I. 1999-001100 -

Interest on money borrowed by a non-resident individual to make a capital contribution to a partnership that carries on business in Canada through a permanent establishment will be deductible to the extent it is allocable to a business source of income and the tests in s. 20(1)(c) are satisfied.

1999 Ruling 992060

Ruling that a Canadian company engaged by a non-resident fund manager to provide accounting and clerical services in Canada would not thereby cause the fund or its manager to be considered to be carrying on business in Canada.

1997 Ruling 970492

Where a non-resident corporation has contracted to perform certain administrative duties for other non-resident corporations, the fact that it has a non-related Canadian company perform certain accounting and clerical services for it under a sub-contract will not, by itself, cause it or its non-resident clients to be carrying on business in Canada.

1 December 1992 Memorandum (Tax Window, No. 27, p. 11, ¶2352; October 1993 Access Letter, p. 475)

Where a non-treaty country subsidiary of a Canadian corporation manufactures or process goods outside Canada with no purchasing or processing of raw materials taking place in Canada, and it appoints its Canadian parent as agent to sell its products in Canada as well as outside Canada in consideration for a sales-based commission and with authority granted to its parent to negotiate and conclude sales contracts in its name, RC will ignore the agency relationship with the parent and consider the subsidiary to have Canadian business income equal to all income from Canadian sales of its product minus costs incurred to earn that income. Such costs generally will include a notional cost of sales (based on the fair market value of the goods manufactured or processed), commissions and other expenses that could reasonably be attributed to the Canadian business activity.

Locations of other summaries Wordcount
Tax Topics - Treaties - Income Tax Conventions - Article 5 30

8 July 1992 T.I. 921814 (March 1993 Access Letter, p. 87, ¶C248-129)

Discussion of allocation of business income between Canada and a foreign country where: a Canadian corporation, acting as a wholesaler, buys property in Canada and sells it to a foreign purchaser; a Canadian corporation manufacturing property in Canada, sells it to a purchaser outside Canada; the Canadian branch of a foreign corporation carries on the above activities; and a corporation resident in a non-treaty country imports property into Canada.

IT-420R2 "Non-Residents - Income Earned in Canada", para. 10

Income from property earned in Canada by a non-resident is not subject to tax under s. 115(1) but, rather, may be subject to Part XIII tax.

Articles

Jinyan Li, "Rethinking Canada's Source Rules In The Age Of Electronic Commerce: Part I", 1999 Canadian Tax Journal, Vol. 47, No. 5, p. 1077.

Constantine Kyres, "Carrying on Business in Canada", 1995 Canadian Tax Journal, Vol. 45, No. 5, p. 1629.

Broadhurst, "Financing by Non-Residents", 1992 Corporate Management Tax Conference Report, pp. 9:10 -9:18

Discussion of whether a non-resident purchaser of accounts receivable would be considered to be carrying on business in Canada.

Subparagraph 115(1)(a)(iii.1)

Administrative Policy

23 January 2015 External T.I. 2013-0509771E5 - Oil & gas payments made to U.S. resident

negative CCDE pool for non-resident individual

Mr. A, a U.S. resident, grants the right to drill for or take the oil & gas from his Canadian freehold property to a Canadian company, in consideration for an upfront bonus of $100,000, and annual royalties payable out of any oil & gas production. The fair market value of this royalty right is $300,000.

After noting that these transactions result in a negative cumulative Canadian oil and gas property expense ("CCOGPE") pool, that any resulting credit balance would be deducted from his cumulative Canadian development expense ("CCDE") pool under variable L, and any negative balance CCDE balance for the year is added to his income pursuant to ss. 66.2(1), 59(3.2)(c) and 115(1)(a)(ii) or (iii.1), CRA noted that a.115(1)(a)(ii) applies if the amount required to be included in income is from a business carried on by Mr. A, whereas s. 115(1)(a)(iii.1) applies to any amount required by s. 59(3.2)(c) to be included in income over and above the amount included in income from a business carried on by Mr. A.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 66.4 - Subsection 66.4(5) - F FMV addition and subtraction where drilling rights are granted for royalty 137
Tax Topics - Income Tax Regulations - Regulation 805 application to resource royalties 235
Tax Topics - Treaties - Income Tax Conventions - Article 12 non-application of Art. 12 of US Treaty to resource royalties 132
Tax Topics - Treaties - Income Tax Conventions - Article 6 negative CCDE gain from grant of oil and gas royalty not exempt under US Treaty 166

Subparagraph 115(1)(a)(iii.2)

Administrative Policy

27 February 1991 T.I. (Tax Window, No. 1, p. 10, ¶1167)

If an individual ceases to be a resident of Canada and subsequently disposes of depreciable properties used in a business carried on outside Canada, the recapture of depreciation will be included in his income under s. 115(1)(a)(iii.2) if s. 2(3) applies, that is, if in the taxation year or any previous taxation years he was employed in Canada, carried on business in Canada or disposed of taxable Canadian property.

Paragraph 115(1)(d)

Paragraph 115(1)(e)

See Also

Matlas, S.A. v. The Queen, 94 DTC 1591 (TCC)

Archambault TCJ. found that losses of the non-resident corporate taxpayer from the operation of a condominium (being its sole investment) were property losses rather than business losses given that the income statement did not evidence any activities of the taxpayer other than those consistent with the passive ownership of the property. Accordingly, the rebuttable presumption that activities within the corporate objects of a taxpayer give rise to business income or loss was rebutted in this instance, and the taxpayer could not reduce a taxable capital gain realized on the ultimate disposition of the property by the application of non-capital losses.

Administrative Policy

10 March 1995 Memorandum 950145 (C.T.O."115(1)(e) (HAA 6815-4)")

"An individual who, while a resident of Canada, incurred a non-capital loss from a business carried on in Canada can, assuming the other requirements of the Act are met, apply that non-capital loss against a taxable capital gain realized on the disposition of a taxable Canadian property, income from the duty of an office or employment performed by him in Canada, or income from a business carried on by him in Canada in a subsequent year when he is a non-resident of Canada."

Paragraph 115(1)(f)

See Also

Delancy v. The Queen, 2004 DTC 2907, 2004 TCC 465 (Informal Procedure)

The taxpayer, who was a U.S. resident, and was employed by two Canadian professional football teams, was unable to deduct his living expenses incurred while living in the vicinity of his home clubs. Woods J. indicated that the deductions that are allowed under paragraph 115(1)(f) are only those listed in Division C of the Act.

Matlas, S.A. v. The Queen, 94 DTC 1591 (TCC)

Archambault TCJ. found that the other deductions referred to in s. 115(1)(f) were deductions other than those referred in paragraphs 115(1)(d) and (e). Accordingly, non-capital losses that could not be deducted under s. 115(1)(e) also could not be deducted under s. 115(1)(f).

Subparagraph 115(1)(b)(ii)

See Also

Pampered Chef, Canada Corp. v. CBSA, [2008] ETC 4514 (CITT)

Individual self-employed sales representatives of the taxpayer secured orders for sales of kitchen products shown at various home parties by them with the products then being imported by the taxpayer from its U.S. parent for shipment directly to the individual customers. The Tribunal found that the sales for export by the U.S. parent were made to the taxpayer rather than to the individual customers. On this basis, the taxpayer satisfied the test of carrying on business in Canada for the purposes of the definition of "permanent establishment" in the Valuation for Duty Regulations.

Subsection 115(2) - Idem [Non-resident’s taxable income in Canada]

Paragraph 115(2)(c)

Cases

Jarlan v. The Queen, 84 DTC 6452, [1984] CTC 375 (FCTD)

Awards which a French resident received for an invention he had made over 10 years previously while still in the employ of the National Research Council fell within s. 115(2)(c). Although the awards were calculated as a percentage of the gross royalties received by Canadian Patents and Development Ltd. on account of use of the patents for his invention, the awards nonetheless arose out of his former employment and were income from employment rather than royalties.

Administrative Policy

26 September 2014 External T.I. 2014-0531441E5 - Unfunded LTD plan payment to non-resident employee

employee long-term disability payments: remuneration under ITA; pension under Cda-U.S. Convention

A Canadian resident employee, after qualifying for benefits under the unfunded long term disability plan ("LTD Plan") of the Canadian resident employer, becomes a resident of the U.S. Under the terms of the Plan, the employee is not required to fulfill any duties of employment and will continue to receive benefits until the earlier of rehabilitation and commencement of benefits under the employer pension plan. Would Part XIII withholding apply? CRA stated:

[T]he LTD Plan payments would be salary, wages or other remuneration…because they would be amounts arising out of the employment relationship. … As such, the amount of LTD Plan payments that would be taxable as income earned by a non-resident employee would be determined in accordance with subsection 115(2) and withholdings under Part XIII would not be applicable… [and] the LTD Plan payments would be subject to withholding under paragraph 153(1)(a)… .

CRA went on to note that as Art. XVIII, para. 3 of the Canada-U.S. Convention defines "pensions" to include any payment under a disability plan "a U.S. resident employee receiving LTD Plan payments could file a Canadian income tax return in order to obtain a refund of any withholdings made in excess of the 15% amount specified in paragraph 2 of Article XVIII."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 153 - Subsection 153(1) - Paragraph 153(1)(a) employee long-term disability payments: remuneration under ITA; pension under Cda-U.S. Convention 206
Tax Topics - Treaties - Income Tax Conventions - Article 18 employee long-term disability payments: remuneration under ITA; pension under Cda-U.S. Convention 251

31 October 1995 Memorandum 950748 (C.T.O. "Employees at Canadian Embassy in Saudi Arabia (8019-6)")

Former Canadian residents working at the Canadian Embassy in Riyadh will have their remuneration subject to tax under s. 115(2) since such remuneration is not subject to an income or profits tax in Saudi Arabia.

Paragraph 115(2)(e)

Subparagraph 115(2)(e)(i)

Cases

Hale v. The Queen, 90 DTC 6481 (FCTD), aff'd 92 DTC 6473 (FCA)

The taxpayer, while a non-resident of Canada, received $25,000 for the performance of his duties as director of a Canadian company. Although the taxpayer maintained that, given that he spent only 57 days in Canada in the year in question in connection with his duties as director, only 57/366 of this sum was taxable in Canada, Rouleau J. upheld the Minister's reassessment that 1/2 of the amount was taxable under s. 115(2)(e) in the absence of any convincing evidence that the taxpayer had devoted a significant amount of time outside Canada to the Canadian company.

Hurd v. The Queen, 81 DTC 5140, [1981] CTC 209 (FCA)

"Remuneration" does not include a S.7 stock option benefit.

Administrative Policy

20 March 2015 External T.I. 2014-0534301E5 - Canadian Withholding Tax on Retiring Allowance

retiring allowance paid to non-resident for loss of non-resident employment

A lump sum payment in compensation for a loss of employment at a French subsidiary is made by Canco to a non-resident of Canada who had been seconded to the subsidiary. CRA first found that s. 212(1)(j.1) would apply to this payment, so that it would not be taxable pursuant to s. 115(2)(e)(i).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 212 - Subsection 212(1) - Paragraph 212(1)(j.1) retiring allowance paid to non-resident for loss of non-resident employment 145
Tax Topics - Treaties - Income Tax Conventions - Article 15 retiring allowance paid to French individual for loss of non-resident employment 71
Tax Topics - Treaties - Income Tax Conventions - Article 22 retiring allowance paid to French individual for loss of non-resident employment 71

Subparagraph 115(2)(b)(ii)

Administrative Policy

14 December 1995 T.I. 952925 (C.T.O. "International Shipping - Gain from Disposition of Goodwill")

Goodwill would be considered personal property for purposes of the exemption in s. 115(2)(b)(ii)(B).

Subsection 115(2.1)

Administrative Policy

27 July 2016 External T.I. 2015-0603271E5 - Subsection 216.1(1) and permanent establishment

prohibition against acting income being filed on a net basis in absence of timely s. 216.1 election

A U.S.-resident actor provides Canadian acting services through an LLC or S corp. The 23% withholding tax under ITA s. 212(5.1) on the gross consideration paid could be avoided if the corporation files a Part I return for the year by its filing due date therefor and elects therein to have s. 216.1 apply. CRA considered that if the non-resident corporation misses this deadline, there is no ability to access s. 216.1, and (based on s. 115(2.1)) the non-resident corporation cannot late-file a “regular” Part I return where the provision of the acting services had resulted in it having a Canadian permanent establishment under the Treaty.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 216.1 - Subsection 216.1(1) late filing under s. 216.1 not accommodated 208
Tax Topics - Treaties - Income Tax Conventions - Article 16 Art. 16 of US Treaty permits gross withholding taxation even if PE 166

Subsection 115(3)

Administrative Policy

7 September 2016 External T.I. 2014-0559751E5 - Subsection 115(3)

comparison of the Treaty method for allocating non-resident pilot income to the domestic (s. 115(3)) method should be done on an annual basis

Would Art. XV of the Canada-U.S. Treaty prevail over s. 115(3) where the Treaty provides more advantageous tax results for a U.S.-resident pilot employed by a Canadian resident employer? CRA responded:

[I]f the application of the Treaty provides a more advantageous tax result than the domestic law in respect of the income of the pilot, Article XV of the Treaty would take precedence over subsection 115(3)… .

[T]he choice of the tax regime used by the non-resident pilot (whether it is pursuant to the Treaty or the domestic tax law) must be consistent throughout a particular taxation year. In other words, a non-resident pilot must use either subsection 115(3) of the Act or the treaty methodology to allocate income from all of the flights occurring in a particular taxation year. The lower of the two amounts thereby determined would be taxable in Canada under the Act.

Locations of other summaries Wordcount
Tax Topics - Treaties - Income Tax Conventions - Article 15 comparison of Treaty and domestic method for pilot income on annual basis 107

Subsection 115(4) - Non-resident’s income from Canadian resource property

Administrative Policy

16 June 2014 External T.I. 2013-0515431E5 - International traffic and airline enterprise

non-resident's provision of crew and aircraft to Canadian airline

During peak season, Canco, which transports passengers to destinations inside and outside Canada, is supplied planes and non-resident pilots and crew by an arm's length U.K. resident ("Forco") who is the pilots' and crew's employer, to transport Canco's passengers. In finding that s. 115(3) did not apply to the non-resident pilots employed by Forco (i.e., they were not "indirectly" employed by a Canadian airline), CRA stated:

[P]ilots employed by a non-resident airline corporation will generally not be subject to this measure. …[but] the taxable income earned by a non-resident from an office or employment exercised in Canada must nevertheless be computed for purposes of…subparagraph 115(1)(a)(i). ..[T]he attribution of income to Canada must be reasonable and may be based on the allocation methods provided in Sutcliffe v. The Queen, 2006 TCC 812 and Price v. The Queen, 2011 TCC 449.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 115 - Subsection 115(1) - Paragraph 115(1)(a) - Subparagraph 115(1)(a)(i) application of Sutcliffe/Price allocation approach were s. 115(3) not applicable 140
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - International Traffic non-resident's provision of crew and aircraft to Canadian airline 103
Tax Topics - Income Tax Act - Section 81 - Subsection 81(1) - Paragraph 81(1)(c) non-resident's provision of crew and aircraft to Canadian airline 103
Tax Topics - Income Tax Regulations - Regulation 102 - Subsection 102(1) Reg. 102 withholding or waiver notwithstanding Treaty exemption 162
Tax Topics - Treaties - Income Tax Conventions - Article 15 U.K company's provision of crew to Canadian airline/Reg. 102 withholding or waiver notwithstanding Treaty exemption 285

93 CPTJ - Q.10

If a non-resident disposes of some, but not all, of its Canadian resource properties, whether ss.115(4)(a) to (c) apply may depend on whether it carried on two or more separate businesses.