22 April 2002 External T.I. 2001-0089875 - Carrying on business in Canada

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 CCRA.

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

Principal Issues:

1. If a non-resident corporation carries on a business of selling shares, will section 253 deem it to be carrying on a business in Canada if it sells the shares in Canada through a Canadian broker?

2. Will section 115.2 apply to deem the non-resident corporation not to be carrying on a business if the conditions in that paragraph are met?

3. If the non-resident corporation does not carry on a business anywhere, will section 253 deem it to be carrying on a business in Canada if it sells the shares in Canada through a Canadian broker?

Position:

1. Yes

2. Yes, for certain purposes of the Act.

3. No

Reasons:

1. The activities meet the conditions in paragraph 253(b)

2. New section 115.2 provides that a non-resident person is not considered to be carrying on business in Canada solely because of the provision to the person of designated investment services by a Canadian service provider.

3. Section 253 will not deem a business to be carried on in Canada, where no business is carried on.

XXXXXXXXXX 2001-008987
S. E. Thomson
April 22, 2002

Dear XXXXXXXXXX:

Re: Non-Resident Carrying on Business in Canada

This is in reply to your letter of June 20, 2001 in which you ask several questions regarding the above issue. We apologize for the delay in responding to your letter.

You outline two separate hypothetical fact scenarios:

Scenario 1

A non-resident corporation holds a portfolio interest in shares in a publicly listed Canadian corporation whose shares trade on a Canadian stock exchange. The shares are held on income account, and are "qualified investments" within the meaning of section 115.2 of the Income Tax Act (the "Act"). The non-resident receives investment management advice with respect to the shares from a Canadian resident broker who also performs the service of selling the shares, as the non-resident's agent, on the relevant Canadian stock exchange.

You would like to know:

1. Does paragraph 253(b) of the Act apply to deem the non-resident to carry on business in Canada in respect of the share sale?

2. Does section 115.2 apply to override this result?

3. Does 115.2 apply to relieve the non-resident from its obligation to file a tax return under subsection 150(1)?

Our Comments

1. Whether or not a non-resident is carrying on business is a question of fact. Where it is found that the non-resident is carrying on business, in our view, paragraph 253(b) would apply to deem the non-resident to be carrying on business in Canada by virtue of the shares being offered for sale in Canada through the broker/agent.

2. We note that section 115.2 was amended on March 27, 2002. Assuming all of the other conditions in section 115.2 of the Act are met, subsection 115.2(2) of the Act would apply to deem the non-resident not to be carrying on business in Canada solely because of the provision to the non-resident of "designated investment services" by a "Canadian service provider", (as those terms are defined in subsection 115.2(1) of the Act), for purposes of subsection 115(1) and Part XIV of the Act.

3. Section 115.2 does not apply for purposes of section 253 or subsection 150(1) of the Act. Therefore, in our view, the non-resident corporation in this scenario would be required to file a corporation tax return for a year in which it is deemed by section 253 to be carrying on business in Canada.

Scenario 2

The facts are the same as scenario 1, but the non-resident corporation holds the Canadian shares on capital account. The shares are not taxable Canadian property. The non-resident does not otherwise carry on business in Canada, or elsewhere, as that term is interpreted under the common law. The non-resident offers the shares for sale in Canada through a Canadian broker on a Canadian exchange.

You would like to know:

Does paragraph 253(b) apply to deem the non-resident to carry on business in Canada?

Our Comments

In our view, paragraph 253(b) would not apply to deem a non-resident to be carrying on business in Canada where, in fact, no business is carried on by the non-resident.

We trust that our comments have been helpful.

Yours truly,

Olli Laurikainen
for Director
International and Trusts Division
Income Tax Rulings Directorate