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.
JAN - 7 1983 D. Lanos (613) 995-1787
Dear Sirs:
This is in reply to your letter dated November 2, 1982 in which you question what Canadian taxes are payable in respect of business operations conducted in Canada by a corporation that is not a resident of Canada.
XXXX
On the basis of the limited information provided as to how the business will be conducted in Canada, we are unable to provide a definite answer but hope the following general comments will be of some assistance.
1. A non-resident of Canada, whether an individual or a corporation, carrying on business in Canada is liable to pay Canadian income tax upon income from that business earned in Canada by virtue of subsections 2(3) and 115(1) of Part I of the Income Tax Act of Canada (the "Act"). See Interpretation Bulletin IT-42 OR enclosed.
2. Under the Canada-United States Tax Convention, an enterprise of the United States is not subject to taxation by Canada in respect of its industrial and commercial profits except those profits allocable to its permanent establishment (see Interpretation Bulletin IT-177R enclosed) in Canada. If your corporation utilizes substantial machinery or equipment in its business operations in Canada, it will be deemed to have a permanent establishment here.
3. Whether or not it is ultimately determined that your corporation is subject to tax and has taxable income earned in Canada, every person who pays a non-resident a fee or other amount in respect of services rendered in Canada is required to withhold, under section 105 of the Income Tax Regulations of Canada, 15% of such payments and remit the amount withheld to the Receiver General of Canada on account of any potential federal income tax liability which may arise from the non-resident's operations in Canada (see Information Circular 75-6 enclosed).
4. Every corporation, whether or not resident in Canada, which carries on business in Canada is required to file a federal (T2) income tax return (see 1981 T2 Corporation Income Tax Guide and 1982 Instalment Guide for Corporations enclosed) and, in some provinces, a provincial corporate income tax return (details may be obtained from the District Taxation Office listed in the above Guides).
5. The federal tax withheld, as discussed in 3 above, will be refunded if it is determined from the federal return that the non-resident corporation does not have any taxable income earned in Canada.
6. An additional "branch tax" may also be exigible on a Canadian branch of a non-Canadian corporation by virtue of subsection 2XXXX of the Act. However, there may be exemption from this tax also under the present Canada-United States Tax Convention (see enclosed IT-137R2 and IT-277 in this regard). A new tax treaty between Canada and the United States is currently under negotiation but has not yet been ratified.
7. If the individual who is to be b red as an engineer is a nonresident of Canada, he too will be subject to Canadian income tax on his taxable income earned in Canada (refer to IT-420R enclosed), subject to the overriding exempting provisions of Article VII of the Canada-United States Tax Convention.
When a corporation commences operations in a particular province, it should contact the nearest District Taxation Office (see Guide enclosed) for instructions on amounts to be remitted in respect of employee's income tax deductions at source, Canada Pension Plan payments and Unemployment Insurance premiums as well as for instructions on the manner in which its own instalment income tax payments, if any, are to be made.
Enquiries in respect of provincial sales taxes should be directed to the revenue ministry of the province in which you expect the corporation to conduct its operations.
We are forwarding a copy of your letter to Revenue Canada, Customs and Excise for their comments on the requirements to be satisfied in respect of the temporary importation and eventual exportation of the sound system.
Yours truly,
ORIGINAL SIGNED BY ORIGINAL SIGNÉ PAR
D.B. MORPHY for Director Corporate Rulings Division Legislation Branch Enclosures
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© Her Majesty the Queen in Right of Canada, 1983
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© Sa Majesté la Reine du Chef du Canada, 1983
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