8 January 2001 External T.I. 1999-0008185 - Non-resident "treaty-protected business"

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: If only a part of the income of a non-resident from a business carried on in Canada would be exempt from tax in Canada under an income tax convention, would the business be a "treaty-protected business" under the definition in subsection 248(1).

Position: Yes

Reasons: The definition of "treaty-protected business" is a business "any income" from which is treaty exempt.

XXXXXXXXXX 							1999-000818
								Olli Laurikainen
Attention:  XXXXXXXXXX 

January 8, 2001

Dear Sirs:

Re: Meaning of "treaty-protected business"

This is in reply to your letter requesting clarification of the above definition in subsection 248(1) of the Income Tax Act (the "Act").

The definition in subsection 248(1) of the Act reads as follows:

"treaty-protected business" of a taxpayer at any time means a business in respect of which any income of the taxpayer for a period that includes that time would, because of a tax treaty with another country, be exempt from tax under Part I"

You observe that the reference to "any income" as opposed to "income" suggests that an entire business would be considered to be treaty-protected where only a portion of the income from the activities of that business is in fact exempted from Canadian tax under an income tax convention. For example, paragraph 4 of Article VIII of the Canada-U.S. Income Tax Convention would exempt from Canadian tax, the profits of a US resident's Canadian branch operations derived from point-to-point cross-border motor vehicle delivery of passengers or property (the "Exempt Activity"), leaving intra-Canada (the "Taxable Activity") profits subject to tax pursuant to subparagraph 115(1)(a)(ii) of the Act. You request our view whether the entire loss from such business would be a loss from a "treaty-protected business" notwithstanding that only a portion of the loss was attributable to Exempt Activity?

Our Comments

In our view a business of a non-resident would be a treaty-protected business notwithstanding that only a portion of the income from the business would be treaty exempt. Accordingly, a non-resident would be prevented from claiming any portion of a loss from such business by the provisions of subsection 111(9) and paragraph 115(1)(c) of the Act.

We recognize that this interpretation produces results that may be inconsistent with the object and purpose of the legislation and intend to bring the matter to the attention of the Department of Finance.

We trust this is the information you require.

Yours truly,

for Director
Reorganizations and International Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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