8 April 1993 Internal T.I. 9237367 F - Permanent Establishment - Income From a Province (4245-3)

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.

April 8, 1993

XXXXXXXXXX

Attention:  XXXXXXXXXX

XXXXXXXXXX

This is in reply to your memorandum of December 14, 1992 concerning XXXXXXXXXX situation.

We have summarized our understanding of the facts as follows:

XXXXXXXXXX

XXXXXXXXXX

Our Comments:

Based on our understanding of the facts, we offer the following comments:

1.     In our view, the taxpayer has been carrying on business through a permanent establishment ("PE") (i.e. a fixed place of business) in Quèbec for the period since the start of the contract in Montreal until the end of 1992.

Since the taxpayer was carrying on a business activity in Montreal for such a lengthy period of time and since the taxpayer had the right to use space at his client's office and on the job site, it is reasonable to conclude that the taxpayer had a fixed place of business in Montreal.

This "use of space" concept has been accepted by the Department of Finance in similar situations and is supported by various statements made under the Commentary for Article 5 in the 1992 OECD Model Tax Convention. In particular, paragraph 4 of Article 5 of the Commentary states

-     "A place of business covers any premises facilities or installations used for carrying on the business ..."

-     "A place of business may also exist where no premises are available or required for carrying on the business of the enterprise and it simply has a certain amount of space at its disposal."

-     "It is immaterial whether the premises, facilities or installations are owned or rented by or are otherwise at the disposal of the enterprise ..."

-     "The place of business may be situated in the business facilities of another enterprise."

-     "This may be the case, for instance, where the foreign enterprise has at its constant disposal certain premises or a part thereof owned by the other enterprise."

2.     The taxpayer appears to be a resident of Ontario at the end of each of the years 1990, 1991 and 1992. Although the taxpayer was staying in a rented room in Montreal for the sole purpose of working on the Montreal contract, the taxpayer continued to be a resident of XXXXXXXXXX.

3.     The taxpayer does not appear to be carrying on business through a PE in XXXXXXXXXX while he was under contract for the Montreal job.

4.     Based on the assumption that, in any particular year, XXXXXXXXXX carried on business through a PE only in Quèbec and resided in XXXXXXXXXX on December 31st, his tax situation would be as follows:

(a)     XXXXXXXXXX should file a T1 General "Federal and Ontario Individual Income Tax Return".

(b)     He should also complete form T2203 "Calculation of Tax re Multiple Jurisdictions" and attach it to the T1 General. The "Part I - Calculation of Income Allocable to Various Jurisdictions" on Form T2203 would be completed in accordance with the provisions in subsections 2601(2) and 2603(1) of the Income Tax Regulations. Basically, the taxpayer would be liable for Ontario tax on his total net income excluding the business income earned in Quèbec.

(c)     XXXXXXXXXX would be entitled to a refundable Quèbec abatement in accordance with subsection 120(2) of the Act with respect to the business income earned in Quèbec.

(d)     XXXXXXXXXX should also file a provincial tax return for the Province of Quèbec in respect of the business income earned in Quèbec.

If you have any further questions in this matter, please do not hesitate to contact the writer.

for DirectorReorganizations and Foreign DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch