7 July 1990 Income Tax Severed Letter - Canadian income and sales tax implications of sales from US companies into Canada

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.

Dear Sirs:

Re: Canadian Income and Sales Tax Implications of Sales from US Companies into Canada

Your letter of January 4, 1990 to Revenue Canada, Customs and Excise has been referred to us for reply insofar as it relates to income tax matters.

You will appreciate that it is not possible for us to respond definitively to a general inquiry such as you have submitted. However, we can make the following general comments which hopefully will be of assistance to you.

Residents of Canada, including a Canadian subsidiary of a U.S. company, are generally subject to Canadian income tax on their world-wide income from all sources.

Non-residents of Canada are generally subject to Canadian income tax in respect of income from sources in Canada including income from businesses carried on by them in Canada. Whether a person is carrying on business in Canada is principally a question of fact. The term is not expressly defined in the Income Tax Act but certain activities are deemed to constitute carrying on business in Canada by virtue of section 253 of the Act which provides as follows:

253. Where, in a taxation year, a non resident person
• (a) produced, grew, mined, created, manufactured, fabricated, improved, packed, preserved or constructed, in whole or in part, anything in Canada whether or not he exported that thing without selling it prior to exportation, or
• (b) solicited orders or offered anything for sale in Canada through an agent or servant whether the contract or transaction was to be completed inside or outside Canada or partly in and partly outside Canada,

he shall be deemed, for the purposes of this Act, to have been carrying on business in Canada in the year.

The Canadian income tax liability of a resident of the United States may be reduced or eliminated by the Canada-United States Income Tax Convention, 1980 (the "Treaty"). For example, pursuant to Article VII of the Treaty Canada has relinquished its right to impose income tax on the business profits of a person resident in the United States unless the person carries on business in Canada through a permanent establishment situated in Canada. Article VII, however, does not apply in respect of items of income dealt with separately in other provisions of the Treaty, such as interest, dividends, royalties, and capital gains to name a few.

We also enclose herewith a copy of Interpretation Bulletin IT-420R2, a publication of this Department entitled "Non-Residents _ Income earned in Canada", which deals in a general way with the taxation of non-residents in respect of certain types of income earned in Canada.