3 December 1997 External T.I. 9720065 - CARRYING ON BUSINESS IN CANADA - BANK ACCOUNT

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.

Principal Issues:

Whether the fact that a non-resident corporation opens a bank account in Canada to pay suppliers in Canada and the U.S. constitutes carrying on business?

Position:

Carrying on business in Canada is a question of fact but the mere opening of an account in and of itself will not constitute carrying on business.

Reasons:

Case law on what constitutes carrying on business would not support our saying that this fact was sufficient in itself to cause a taxpayer to be carrying on business.

972006
XXXXXXXXXX David R. Senécal

Attention: XXXXXXXXXX

December 3, 1997

Dear Sirs:

Re: Canadian Bank Accounts

This is in reply to your letter of July 8, 1997, regarding the tax consequences of a company resident in Bermuda opening an account in Canada with a Canadian chartered bank in order to facilitate the company paying suppliers in Canada and the United States.

You have indicated in your letter that the company does not receive any revenue from any Canadian source and that the company is receiving income solely as a result of its operations in Bermuda.

Your enquiry relates to an actual proposed transaction which involves a specific taxpayer. Our department will only deal with this type of enquiry when it is presented in the form of an advance income tax ruling request as described in Information Circular 70-6R3 (copy enclosed). However, we provide the following general comments which may or may not apply to your client and which, in accordance with the above-mentioned Information Circular, are not binding on the Department.

While we are not aware of any restrictions which would prevent a non-resident corporation from opening a bank account in Canada, providing advice of this nature is beyond the mandate of our department. We would therefore, suggest that you communicate with the Canadian financial institution with which your client is considering opening an account or with the Office of the Superintendent of Financial Institutions Canada, 255 Albert St., Ottawa, K1A 0H2, facsimile # (613) 952-8219.

A non-resident corporation that carries on business in Canada would be subject to tax in Canada pursuant to Part I of the Income Tax Act (the "Act"). Whether or not a particular non-resident corporation is carrying on business in Canada is a question of fact and a determination can only be made after consideration of all the relevant facts. Having said this, the mere fact that a non-resident corporation maintains a bank account in Canada for the purpose of paying its suppliers, in and of itself, will not cause the corporation to be considered as carrying business in this country for purposes of the Act.

Pursuant to Part XIII of the Act, every non-resident person shall pay an income tax of 25% on every amount that a person resident in Canada pays or credits to the non-resident on account or in lieu of, or in satisfaction of certain types of income (usually passive in nature) such as dividends, interest and royalties. Consequently, interest earned on amounts placed on deposit with a Canadian financial institution would be subject to such tax. However, pursuant to sub-clause 212(1)(b)(iii)(D) of the Act, there is an exemption where the interest is payable on an amount which is not repayable in Canadian currency deposited with an institution that was at the time the amount was deposited or at the time the interest was paid or credited a prescribed financial institution (i.e., a member of the Canadian Payments Association).

We trust that our comments will be of assistance to you.

Yours truly,

for Director
Reorganizations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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