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.
Principal Issues: Will the non-resident corporation carry on a business in Canada for the purposes of paragraph 3 of Article XXI of the Canada-US Tax Convention?
Position: In this particular case, no
Reasons: According to the facts in the particular case, the non-resident corporation is organized and operated exclusively for XXXXXXXXXX purposes and does not have any activity undertaken for the purpose of profit. The activities undertaken in Canada are an integral part of the XXXXXXXXXX activities. Even if the activities undertaken in Canada were separate activities, the frequency of those activities does not amount to carrying on a business.
Re: Advance Income Tax Ruling
This is in reply to your letter of XXXXXXXXXX in which you requested an advance income tax ruling on behalf of the taxpayers named above. We also acknowledge additional correspondence concerning your request.
We understand that to the best of your knowledge, and that of the taxpayers involved, none of the matters considered in this ruling request are:
a) dealt with in an earlier return of the taxpayers or a related person;
b) being considered by a tax services office or tax centre in connection with a previously filed tax return of the taxpayers or a related person;
c) under objection by one or any of the taxpayers or a related person;
d) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has expired; and
e) the subject of a ruling previously issued by this Directorate.
In this document, unless otherwise indicated, all monetary amounts are expressed in Canadian dollars and all statute references are to the Income Tax Act (R.S.C. 1985, 5th Supplement, c.1, as amended, the "Act").
In this letter, unless otherwise expressly stated, the following terms have the meanings specified:
(a) "Tax Convention" means the Convention Between Canada and the United States of America With Respect to Taxes on Income and on Capital.
(b) "USCO" means XXXXXXXXXX;
(c) "US Foundation" means the XXXXXXXXXX.
1. USCO and US Foundation are corporations incorporated under the laws of the State of XXXXXXXXXX and resident in the United States of America.
2. USCO and US Foundation are exempt from income tax on most sources of income pursuant to section 501(3)(c) of the Internal Revenue Code, 1986.
3. The Charter of USCO provides that USCO is organized and operated exclusively for XXXXXXXXXX purposes.
5. US Foundation's objects are to further the activities of USCO.
6. USCO would like to conduct the full range of general fundraising activities in Canada that it conducts in the United States.
7. That fundraising is and would be conducted XXXXXXXXXX . Since USCO has significant name recognition in Canada, it is important to continue the use of the USCO name as much as possible.
8. Currently, a "1-800" number is provided in USCO's advertising in Canada and contributions are sent to a lock box in Canada or made by charge card.
9. Occasionally, USCO hosts events in Canada to thank donors and to promote its XXXXXXXXXX. It also holds occasional fundraising events.
10. None of the activities of USCO are or will be undertaken in pursuit of profit.
11. To engage in additional general fundraising activities in the future, USCO would like to have premises in Canada. USCO will retain an independent Canadian fundraiser who will do some of his work for USCO partly from the premises. It is also possible that the premises will be staffed by support staff engaged by USCO. U.S. based employees of USCO might occasionally use the premises for meetings. To this end, US Foundation acquired a small condominium property in XXXXXXXXXX which it will make available to USCO on the basis that USCO pay all operating costs of the premises (e.g., hydro, property taxes, common expenses, gas, water, etc., but excluding any principal or interest on any financing associated with the purchase). There was no financing associated with the purchase. At present, the operating costs of the premises are estimated to be around C$XXXXXXXXXX per month. The premises will be furnished by USCO and used for fundraising purposes. US Foundation will make the property available to USCO free of charge by way of license at will. No written license or other agreement is intended to be entered into between US Foundation and USCO. USCO will also be responsible to pay for XXXXXXXXXX parking spaces, cleaning/janitorial service, cable service, telephone, etc. It is estimated that these items would aggregate an additional C$XXXXXXXXXX per month. The amount received by US Foundation from USCO for the use of the premise will be exempt for U.S. Income Tax.
12. USCO plans to host XXXXXXXXXX "meet and greets" per year at its XXXXXXXXXX premises. This is a way to thank donors.
14. USCO would sponsor a phone line or lines staffed by Canadian community volunteers in XXXXXXXXXX.
15. USCO would also conduct meetings of a Canadian advisory board for USCO in XXXXXXXXXX.
16. USCO employees based in XXXXXXXXXX would travel to Canada to assist with these activities. In general, the same types of XXXXXXXXXX events that are held in the U.S. by USCO would be conducted in Canada, with a focus on those donors who do not require charitable tax receipts or credits.
17. USCO will have face-to-face solicitations with current and potential Canadian members of USCO asking them for their support along with other potential major donors.
18. USCO will have "cultivation sessions" where it seeks to educate potential donors or others about USCO's mission, the possibilities and potential and the need for changes relating to XXXXXXXXXX as well as ways for them to support USCO's activities. At these cultivations sessions there will not be any direct requests for financial support.
19. At no time will there ever be any sales of merchandise, rendering of services or other kinds of business activities by way of fundraising events or otherwise. The amounts received from fundraising activities represent voluntary payments and are not connected with the provision of any goods or services.
20. It is expected that some kind of fundraising activity will occur every month in the Canadian property comprised of one or two face-to-face solicitation meetings and one cultivation activity every month. These meetings would be in the one to three hour range.
21. USCO's XXXXXXXXXX activities will be undertaken wholly within the U.S.
22. USCO's fundraising revenues, including any Canadian receipts, will be exempt from income tax in the U.S.
PURPOSE OF THE PROPOSED TRANSACTIONS
The purpose of the proposed transactions is to enable USCO to enhance its current fundraising activities with its Canadian XXXXXXXXXX by means of establishing a permanent presence in Canada. As with its current fundraising efforts in Canada it will be dealing with donors who do not require charitable tax receipts or credits in connection with donations.
Provided the above Statements of Facts, Proposed Transactions and Purpose thereof are accurate and constitute complete disclosure of all relevant facts and proposed transactions, our rulings are as follows:
A. If the amounts derived by USCO from fundraising activities described in the proposed transactions are exempt from tax in the United States, they will be exempt from tax in Canada pursuant to paragraph 1 of Article XXI of the Tax Convention. These amounts will not be considered as income from carrying on a trade or business for the purposes of paragraph 3 of Article XXI of the Tax Convention.
B. If the amounts received by US Foundation from USCO as described in paragraph 9 are exempt from tax in the United States, they will be exempt from tax in Canada pursuant to paragraph 1 of Article XXI of the Tax Convention. These amounts will not be considered as income from carrying on a trade or business for the purposes of paragraph 3 of Article XXI of the Tax Convention.
The rulings given herein are based solely on the facts, proposed transactions and purposes of the proposed transactions described above and are limited to the specific transactions described in the proposed transactions. Facts and proposed transactions in the documents submitted with your request not described above do not form part of the facts and proposed transactions on which these rulings are based and any reference to these documents is provided solely for the convenience of the reader. Nothing in this letter should be construed as implying that the CRA has confirmed, reviewed or has made any determination in respect of the tax consequences of any other transactions that might be undertaken.
The above rulings are based on the Act and the Tax Convention in their present form and do not take into account any proposed amendments to the Act or Tax Convention.
Nothing in this ruling should be construed as implying that the Canada Revenue Agency has agreed to or reviewed any tax consequences relating to the facts and Proposed Transactions described herein other than those described in the rulings given.
These rulings are given subject to the limitations and qualifications set forth in Information Circular 70-6R5 issued on May 17, 2002, and are binding on the Canada Revenue Agency provided that the proposed transactions commence on or before XXXXXXXXXX, provided there is no change in the facts and in the transactions described in proposed transactions and provided there is no change to the Act, the Tax Convention and the Canadian tax jurisprudence related to this issue.
The word "income" is not defined in the Tax Convention or in the Income Tax Act. In our view, the word "income" in paragraph 1 of Article XXI of the Tax Convention includes capital gains on dispositions of capital properties.
for the Director
International and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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