CRA accepted that a U.S. resident with only a Canadian services PE was subject only to federal income tax on his income

CRA recently agreed with the position of a U.S.-resident individual who had a services permanent establishment in Canada under the Canada-U.S. Treaty but did not otherwise have a Canadian permanent establishment, that he did not earn income in any province. Accordingly, rather than being subject to provincial tax on his servicing income, he was subject to additional federal tax thereon of only 48% of federal tax.

The same analysis would apply (at least for the common law provinces) to a U.S. corporation which had only a Canadian services PE, so that it would enjoy an additional federal rate of 10% (in effect imposed under s. 124(1)) rather than facing provincial rates running from 12% to 16%.

Neal Armstrong. Summary of Kevyn Nightingale and Amir Pourzakikhani, "A Federal Permanent Establishment, But Not a Provincial One," Tax Topics, Wolters Kluwer, November 3, 2016, No. 2330, p. 1 under s. 120(1).