CRA rules that using employees to provide on-line health services to non-resident patients from home offices in Canada does not create a PE in Canada

Three corporate taxpayers, which are resident in three countries with which Canada has treaties, use employees residing in those respective countries to provide online (e.g., by phone or video) services to patients in the same time zone. The taxpayers have now started providing the same services to patients in the same time zone as a Canadian province (“western patients”) but will not provide services to any patients located in Canada.

In order to accommodate employees who do not wish to work on night shifts in providing services to western patients, the taxpayers will permit (and financially assist) them to rent short-term accommodation (they will stay no more than 183 days) in such province, so that they can use their home office there to provide the services to western patients using computers provided by their employer. The taxpayers will continue to maintain their servers outside Canada and will have no access rights to such home offices.

CRA ruled that the taxpayers will be considered to be carrying on business in Canada while such employees are providing such services, but that they will not be considered to be carrying on business in Canada through a permanent establishment, as defined in Article 5 or V of the applicable treaty, solely as a consequence of such services being so provided.

Neal Armstrong. Summary of 2024 Ruling 2023-0984281R3 under Treaties – Income Tax Conventions – Art. 5.