27 June 2013 External T.I. 2012-0459481E5 - Taxation of a Non-Resident

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: Whether a U.S resident, who uses Canco to store precious metals and coins, and for other related services, is subject to Canadian income tax under Part I of the Act.

Position: Question of fact.

Reasons: Consideration of all relevant facts and circumstances is needed.

XXXXXXXXXX
2012-045948
Shelley Helmer
(613) 957-2103
June 27, 2013

Dear Sir:

Re: Tax Consequences of Coin Sale by Non-Resident

We are writing in response to your letter of August 20, 2012, in which you described a hypothetical situation involving two individuals who are residents of the United States ("Mr. A" and "Mr. B"), and a corporation resident in Canada ("Canco"). Canco provides for the storage of precious metals and coins, and performs related services for its clients. Mr. B uses Canco to store and act as custodian of his coins and precious metals. Mr. B. plans to sell the coins and precious metals to Mr. A. All parties deal with each other at arm's length.

You have asked for our comments on the income tax and goods and services tax/harmonized sales tax ("GST/HST") consequences arising from this sale, and whether the results vary where Mr. A is a Canadian resident.

Our Comments

Written confirmation of the tax implications inherent in a particular transaction is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. However, we are prepared to offer the following general comments that may be of assistance.

For guidance on the sales tax consequences resulting from the disposition, we suggest that you contact the Excise and GST/HST Rulings Directorate. Further information in this regard is available in Guide RC4405, GST/HST Rulings - Experts in GST/HST Legislation.

In respect of the income tax consequences resulting from the disposition, subsection 2(3) of the Income Tax Act (the "Act") provides that a non-resident of Canada will be subject to Canadian income tax in a taxation year if the non-resident was employed in Canada, carried on a business in Canada, or disposed of taxable Canadian property ("TCP"). Pursuant to its definition in subsection 248(1) of the Act, TCP includes property used or held by the taxpayer in, or property described in an inventory of, a business carried on in Canada.

In the situation that you have described, there is nothing to suggest that Mr. B is employed in Canada. As such, it would seem most relevant to determine whether the disposition of the coins and precious metals would constitute the carrying on of a business in Canada by Mr. B. Where Mr. B is considered to be carrying on business in Canada, he would, at the outset, be subject to Canadian income tax under Part I of the Act, regardless of the residency status of Mr. A, the purchaser.

Whether a person carries on a business in Canada is a question that requires consideration of all relevant law, as well as the particular facts and circumstances of the particular situation. In this regard, subsection 248(1) of the Act defines a "business" to include a profession, calling, trade, manufacture or undertaking of any kind whatever, and an adventure or concern in the nature of trade, but not to include an office or employment. For further guidance on the determination of whether Mr. B carried on a business, you may refer to our Interpretation Bulletin IT-459, Adventure or Concern in the Nature of Trade. Also, as your questions relate to a transaction involving the sale of coins and precious metals, you may also consider our comments in Interpretation Bulletin IT-346R, Commodity Futures and Certain Commodities.

Where, based on the facts, it is determined that Mr. B is carrying on a business in Canada, paragraph 1 of Article VII of the Canada-U.S. Tax Convention (the "Convention") may provide relief from Canadian income tax. Under Article VII of the Convention, business profits of a resident of the U.S. shall be taxable only in the U.S. unless the resident carries on business in Canada through a permanent establishment ("PE") in Canada. If the U.S. resident carries on, or has carried on business, the business profits of the U.S. resident may be taxed in Canada to the extent that they are attributable to that PE in Canada.

Additionally, you may consider Article V of the Convention, which provides certain conditions that, if met, will deem a place of business in Canada to constitute a PE. However, based on the limited information provided in your letter, we are unable to determine whether the particular conditions outlined in Article V of the Convention are met in the situation that you described.

We trust that our comments will be of assistance to you, and we apologize for the delay.

Yours truly,

Robert Demeter, CPA, CGA
Section Manager
For Director
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch