9 April 1985 Income Tax Severed Letter

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.

J.F. Oulton (613) 995-1787

April 9, 1985

Dear Sirs:

XXXX

Your Question:

You asked whether or not the U.S. entities would be subject tax in Canada in respect of any profit derived from the operation

XXXX

Comments:

We have noted that you have referred to the U.S. entities as non-profit organizations. Under paragraph 1 of Article XXI of the Canada - U.S. Income Tax Convention (1980) (the "Convention") income derived by a religious, scientific, literary, educational or charitable organization resident in the U.S. is exempt from tax in Canada to the extent that such income is exempt from U.S. tax. You did not indicate what the U.S. tax position would be but if the income generated through the operation of the XXXX is tax-free in the U.S. and the U.S-. entities fall into one the categorized organizations specified by the Convention, then we feel that such income will be also exempt from tax in Canada.

If Article XXI of the Convention does not exempt the U.S. entities from Canadian tax, then reliance for exemption from tax will have to be placed on paragraph 149(1)(1) of the Income Tax Act (the Act) if these entities would otherwise have taxable income. For nonresident persons, taxable income would be determined pursuant to subsection 2(3) and Division D of the Act. In any event, we are not able to comment on the exemption aspect more definitively vis à vis the U.S. entities, since you only provided information on the Canadian entity's organizational structure without specific details of the organizational structure of the U.S. entities or how the U.S. entities (or the Canadian entity) operate(s). However, you seem to be satisfied that the various criteria set forth in Interpretation Bulletin IT-496 are met, so we will not comment further.

If Article XXI of the Convention and paragraph 149(1)(1) would not exempt the U.S. entities from tax, then in our view, Article VII of the Convention would also probably not exempt them from tax in Canada since the U.S. entities would have a permanent establishment in Canada. "Permanent Establshment" is defined by Article V of the Convention and includes a workshop. One dictionary mean of workshop is a "meeting of several persons for intensive discussion etc." Undoubtedly the XXXX would constitute a workshop within that definition with esult that business profits would not be exempt from tax under Article VII of the Convention.

Finally, the payment of any profits from the XXXX to the U.S. entities would, in our view, represent a payment of business income and would not be subject to non-resident tax under Part XIII of the Act.

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

Sincerely,

ORIGINAL SIGNED BY ORIGINAL SIGNÉ PAR D.B. MORPHY

for Director Corporate Rulings Division Corporate Rulings Directorate Legislation Branch