The international shipping non-residency exemption may cause a deemed exit tax for foreign shipping companies which had nil income in a prior year

There are some unresolved rules relating to the Canadian international shipping rules:

• The branch exemption found in s. 81(l)(c) only provides that the international shipping income earned by the foreign taxpayer is not included in income – it does not provide that the company is not carrying on business in Canada, thereby potentially resulting in an obligation for a large international shipping company to file hundreds of nil returns.
• It is not clear whether a foreign company can satisfy the revenue tests in s. 250(6)(b) if it happens to have nil revenue in a year, as might occur if its only assets are vessels under construction, or shares in vessel operating companies that do not pay any dividends in the year. If, as a result of this problem, it is considered to be resident in Canada, then in a subsequent year when it earns income qualifying it as a deemed non-resident of Canada under s. 250(6)(b), it will be treated as migrating from Canada, thereby triggering tax on accrued gains.

Neal Armstrong. Summaries of Michael Shields, "Taxation of International Shipping Companies in Canada," International Tax, Wolters Kluwer CCH, No. 88, June 2016, p. 1 under s. 81(1)(c) and s. 250(6)(b).