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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Tim Kuss
XXXXXXXXXX 970709
Attention: XXXXXXXXXX
June 12, 1997
Dear Sirs:
Re: International Shipping - Subsection 250(6)
This is in reply to your letter dated March 7, 1997 wherein you asked for our comments regarding the following specific questions relating to subsection 250(6) and paragraph 81(1)(c):
- Does the business of using a ship primarily for towing equipment to an offshore drilling site constitute "the operation of ships that are used primarily in transporting passengers or goods"?
- In determining whether a corporation's ships are used primarily in transporting passengers or goods in international traffic, does the Department make this determination on a ship by ship basis or on a total fleet basis?
- How is a ship's idle or standby time treated when determining whether a ship is used primarily in transporting passengers or goods in international traffic?
- Would the activities of a corporation qualify as the "operation of ships" if it owns the ship, subcontracts the crew from a related party at fair market value, and then charters out that ship, with crew, to an arm's length person at fair market value?
Analysis and Discussion
The above issues concern questions of fact that can only be determined with full knowledge of all of the particulars of the situation. Therefore, we are unable respond definitively to your specific questions. However, we are prepared to provide the following general comments.
Generally, a vessel used to tow equipment and supplies to an offshore drilling site to be used or consumed at that site would be considered to be used primarily in transporting passengers or goods.
Whether a ship is used "primarily" in international traffic is, again, a question of fact. The Department is not prepared to set arbitrary guidelines and, in a particular fact pattern, some measures will be more appropriate than others. In determining whether a corporation's ships are used primarily in transporting passengers or goods in international traffic the Department will normally look at the corporation's overall shipping business. However, this will not preclude the Department from taxing the income in respect of those voyages that are between two points in Canada. The purpose of subsection 250(6) is merely to clarify the residence of corporations engaged in international shipping, it does not alter the substantive law concerning the taxation of non-residents.
A ship may be idle or on standby for many different reasons. Where a ship is waiting in a queue for its turn to dock and unload its cargo, or is waiting to pick up a new cargo (in circumstances where time would be an appropriate measure for the "primarily" test), such time would generally be included in determining the total time of a particular voyage for purposes of determining whether the "primarily" test has been satisfied. Where a ship was idle for an extended period due to lack of business and was then used primarily in international traffic for the balance of the year, generally the Department would not take the idle time into account in determining whether the "primarily" test was satisfied.
Where a corporation owns a ship, contracts the crew from a related party at fair market value and then charters out that ship with crew to an arm's length party at fair market value, that corporation would be considered to be engaged in the operation of ships. However it would be a question of fact whether the related party that provided the crew would be considered to be engaged in the operation of ships.
We hope our comments are of assistance.
Yours truly,
for Director
Reorganizations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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