Principal Issues: At what point in time does an authorized foreign bank commence its first fiscal period in Canada? Foreign banks wish to take advantage, for their first taxation year in Canada, of the reduced capital tax liability imposed during short taxation years under subsections 181.1(2) and 190.1(2) of the Income Tax Act by commencing their first fiscal period at the time they actually begin to carry on banking activities in Canada e.g. write loans etc.
Position: The first fiscal period of an authorized foreign bank commences no later than the date the Superintendent of Financial Institutions issues a section 534 order authorizing it to commence and carry on business in Canada. The bank may choose to commence its first fiscal period prior to that time, provided it was in existence at the time it elects to commence that first fiscal period
Reasons: Generally, a non-resident corporation is not obligated to adopt, for Canadian tax purposes, either the same fiscal period that it uses to report income in its home jurisdiction or a fiscal period that commences concurrent to the anniversary of its date of incorporation. Instead, it may commence its fiscal period no later than the day it commences business activities in Canada, or at any earlier time that the corporation was in existence. An authorized foreign bank may not commence to carry on business in Canada until it is authorized to do so by an order made under subsection 534(1) of the Bank Act. Once a section 534 order has been issued, an authorized foreign bank is present in Canada and has taken all prerequisite steps to commence its Canadian business.