Joint Committee, "Guidance on International Income Tax Issues raised by the COVID-19", 11 June 2020 Joint Committee Submission

Summary Under
Tax Topics - Income Tax Regulations - Regulation 5907 - Subsection 5907(1) - Exempt Earnings - Paragraph (d)

Impact of COVID travel restrictions on DTC residence of FA

  • As the Guidance on international income tax issues raised by the COVID-19 crisis focuses on the COVID Travel Restrictions’ effect on whether a foreign corporation will be resident in Canada, it is recommended that the same approach be taken elsewhere, e.g., whether a foreign affiliate (“FA”) qualifies as resident in a “designated treaty country” - so that, for example, where directors cannot attend a board meeting in person solely because of Travel Restrictions, this will not negatively impact the treatment of active income earned by the FA as exempt surplus.
Summary Under
Tax Topics - Income Tax Act - Section 95 - Subsection 95(1) - Foreign Accrual Property Income

COVID 19 relief suggested re FAPI issues

The Guidance on international income tax issues raised by the COVID-19 crisis addresses whether COVID Travel Restrictions could result in a non-resident being considered to carry on business in Canada or have a Canadian permanent establishment, but should also address the following foreign accrual property income (FAPI) issues:

  • Income from an active business will be deemed to be FAPI where it is carried on through a permanent establishment in a “non-qualifying country.”
  • Furthermore, question as to whether income from an active business carried on by an FA resident in a DTC will be included in its exempt earnings will often depend on whether that income is attributable to business activities carried on in a DTC, which could be affected by the stranding of employees in a non-DTC.
  • Similarly, one of the exceptions from the “investment business” definition looks to whether the activities of the foreign affiliate are regulated under the laws of “each country in which the business is carried on through a permanent establishment in that country”. Similar issues may arise under other provisions of the FAPI rules.
Summary Under
Tax Topics - Treaties - Income Tax Conventions - Article 5

Impact of COVID travel restrictions on day count tests for PE status

The Guidance on international income tax issues raised by the COVID-19 crisis, which speaks to relief for the impact of COVID travel restrictions regarding whether a non-resident entity will have a permanent establishment under the 183-day test in the services permanent establishment provision, could also provide relief under similar provisions such as the 12-month period referenced in the building site and installation or drilling rig provisions.

Summary Under
Tax Topics - Income Tax Act - Section 153 - Subsection 153(6)
Impact of COVID travel restrictions on day count tests for qualifying non-resident employee status

The Guidance on international income tax issues raised by the COVID-19 crisis provided administrative relief for employees who exceeded the 183-day threshold in the Canada-U.S. Treaty because of COVID travel restrictions, but should also address the 45-day and 90-day periods applicable in determining whether an individual resident in a treaty country is a "qualifying non-resident employee" under s. 153(6).