Section 132

Subsection 132(1) - Person Resident in Canada

Administrative Policy

RC4027 "Doing Business in Canada - GST/HST Information for Non-Residents" Rev. 13

A corporation that is not incorporated in Canada may still be considered to be resident in Canada under general legal principles. It is also considered to be a resident of the place where its central management and control mechanisms are located. Factors that determine whether an organization is centrally managed or controlled include the place where:

  • its directors live and hold their meetings;
  • its shareholders live and hold their meetings;
  • its managers live and hold their meetings; and
  • the organization performs its principal business and operations, and keeps its books and records.

Generally, a trust is resident in the country where the trustee who has management and control of the trust lives. If more than one trustee has management and control, the trust is resident in the country where the majority of the trustees live.

GST M 300-5 "Place of Supply"

The factors considered for income tax purposes in determining the residency of an individual provide some guidelines for determining whether he is resident for GST purposes.

Paragraph 132(1)(a)

Administrative Policy

27 February 2020 CBA Roundtable, Q.17

a Canadian Amalco was “incorporated” in Canada - and if continued elsewhere, may still have central management and control in Canada

(a) Is a corporation formed by the amalgamation of one or more corporations, pursuant to the laws of Canada or a province, considered to be “incorporated” in Canada and, therefore, deemed by s. 132(1)(a) to be resident in Canada (having regard inter alia to Deltona, which considered the formation by amalgamation of a corporation to be its “incorporation”), provided it is not continued elsewhere; and

(b) Is a corporation incorporated in Canada that was continued in a jurisdiction outside Canada considered to be resident in Canada, if its central management and control is exercised in Canada, or to the extent that it maintains and carries on activities through a permanent establishment in Canada?

CRA responded:

a) Under paragraph 132(1)(a) of the ETA, a corporation incorporated or continued in Canada and not continued elsewhere is deemed to be resident in Canada. Where two or more Canadian corporations amalgamate under the rules for amalgamation set out in the Canadian federal or provincial statute under which they were incorporated, and a certificate of amalgamation is issued, the amalgamated corporation will generally be deemed to be resident in Canada because it would be considered to be incorporated in Canada.

b) A corporation incorporated in Canada that is continued in a jurisdiction outside of Canada would not be deemed, under subsection 132(1)(a), to be resident in Canada. However, such a corporation may be considered resident in Canada if the central management and control of the activities of the corporation is exercised in Canada. This determination is a question of fact.

Under subsection 132(2), if a non-resident corporation has a permanent establishment in Canada, the corporation is deemed to be resident in Canada in respect of, but only in respect of, activities of the corporation carried on through that establishment.

Words and Phrases
incorporated

Subsection 132(2)

Administrative Policy

GST/HST Memorandum 14-7 Closely Related Corporations June 2023

S. 132(2) does not deem the PE to be a resident person or a closely related person

8. Subsection 132(2) provides that where a person that is not resident in Canada has a permanent establishment in Canada, the person is deemed to be resident in Canada, but only in respect of the activities of the person carried on through that permanent establishment. This deeming rule under subsection 132(2) does not satisfy the residency requirement in the definition of closely related group since the definition applies to a corporation as a whole, not just to particular activities of the corporation carried on through its permanent establishments. In addition, a permanent establishment in and of itself is not a person for GST/HST purposes, as the definition of person in subsection 123(1) does not include a permanent establishment.

GST/HST Memorandum 17-14 Election for Exempt Supplies July 2011

PE of non-resident cannot make the election

16. Subsection 132(2) provides that where a non-resident person has a permanent establishment in Canada, the person is deemed to be resident in Canada in respect of, but only in respect of, activities of the person carried on through that establishment. This deeming under subsection 132(2) does not meet the residency requirement of the definition of "closely related group" for purposes of the election under subsection 150(1) since the corporation must be resident to make the election and the election applies to a corporation as a whole, not just to particular activities of the corporation carried on through a permanent establishment.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 150 - Subsection 150(1) 132

27 February 2020 CBA Roundtable, Q.5

s. 132(2) does not deem a non-resident person to be a resident

In light of CIBC World Markets, does CRA consider a non-resident person with a branch in Canada to be resident in Canada for purposes of the s. 156 election? CRA responded:

We are aware of the CIBC World Markets case and are currently considering its impact on section 132 of the ETA.

Subsection 132(2) deems a non-resident person with a permanent establishment in Canada to be resident in Canada “in respect of, but only in respect of activities of the person carried on through that establishment”. Based on the clear legislative wording, it has been the CRA’s position that subsection 132(2) does not deem a non-resident person as a whole to be resident in Canada for purposes of the Part IX of the ETA. It has therefore been the CRA’s view that the non-resident person in your scenario would not be eligible to make the section 156 election.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 156 - Subsection 156(1) - Qualifying Member CIBC World Markets may not permit a non-resident to make an ETA s. 156 election through its Canadian PECRA has not so far not adopted the CIBC World Markets decision 216

Subsection 132(3) - Permanent Establishment of Resident

Cases

CIBC World Markets Inc. v. Canada, 2019 FCA 147

a non-resident PE had deemed separate person status sufficient to insulate it from an ETA s. 150 election

Administrative services provided by the appellant to its parent (“CIBC”) respecting activities carried on by CIBC through its non-resident branches were treated by CRA as not being zero-rated under Sched. V, Pt. VII, s. 2 because of an ETA s. 150(1) election made between the two companies, which deemed “every supply” between then to be an exempt financial supply (so that related inputs of the appellant did not generate input tax credits). After noting (at para. 29) that “Being a tax on domestic consumers, GST is removed from exported supplies,” and (at para. 33) that ss. 132(2), (3) and (4) “allow for the same tax treatment as would apply if the persons concerned had operated through the use of subsidiaries rather than permanent establishments,” Noël C.J. rejected the Crown’s submission that the wording of s. 132(3) (which merely deemed CIBC to be a non-resident person in respect of “activities” carried on by it through its non-resident permanent establishments) did not go far enough to deem the CIBC branches to be persons separate from CIBC for s. 150 purposes, stating (at para. 40):

GST is a transactional tax and the activities carried on through CIBC’s foreign permanent establishments are those in the course of which the supplies in issue were made and the ITCs are being claimed. Furthermore, the deeming rule in subsection 132(3) applies “For the purpose of this Part” which includes subsection 150(1). When regard is had to those words, CIBC must be treated as a non-resident person insofar as subsection 132(3) deems it so.

Further (at para. 54):

Applying subsection 150(1) to deemed exported supplies under subsection 132(3) would defeat the tax neutrality which this provision is designed to achieve by imposing a less favourable and more onerous tax treatment on financial institutions that operate abroad through foreign branches rather than foreign subsidiaries.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 132 - Subsection 132(4) expansive deemed person language required because 2 PEs involved 372
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Closely Related Group definition has the effect of extending s. 150 election to exported supplies of Canadian PEs of non-resident insurers 189
Tax Topics - Excise Tax Act - Section 150 - Subsection 150(2) s. 150(2) amendment was required because of the risk of taxpayers arguing otherwise 469
Tax Topics - Statutory Interpretation - Ordinary Meaning ambiguity can arise on consideration of how the provision interacts with another 172
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply no supplies between PEs of the same person in the absence of s. 132(4) 70

Administrative Policy

GST/HST Memorandum 14-7 Closely Related Corporations June 2023

Notwithstanding s. 132(3), resident can be closely related re activities of its foreign PE

9. Subsection 132(3) provides that where a person who is resident in Canada (including a person deemed to be resident under subsection 132(1)) has a permanent establishment in a country other than Canada, the person is deemed to be non-resident in respect of, and only in respect of, activities that the person carries on through its permanent establishment outside Canada. Since a corporation that is deemed to be resident in Canada under subsection 132(1) will meet the residency requirement in the definition of closely related group, notwithstanding that it has a permanent establishment outside Canada, the corporation’s status as being resident in Canada will apply to its permanent establishment outside Canada for purposes of the definition of closely related group.

GST M 300-5 "Place of Supply"

A Canadian architect who has an office in the United States is not liable for GST in respect of services wholly performed in the United States in the course of activities carried on through that permanent establishment.

Subsection 132(4)

Cases

CIBC World Markets Inc. v. Canada, 2019 FCA 147

expansive deemed person language required because 2 PEs involved

Administrative services provided by the appellant (“WMI”) to its parent (“CIBC”) respecting activities carried on by CIBC through its non-resident branches were treated by CRA as not being zero-rated under Sched. V, Pt. VII, s. 2 because of an ETA s. 150(1) election made between the two companies, which deemed “every supply” between them to be an exempt financial supply (so that WMI’s related inputs did not generate input tax credits). The Crown argued that ETA s. 132(3), which merely deemed CIBC to be a non-resident person in respect of “activities” carried on by it through its non-resident permanent establishments, was not adequate to the task of deeming those PEs to be separate persons for s. 150 purposes.

Essentially, Noël C.J. considered that the “activities” language in s. 132(3) indeed was adequate because the GST (a “transactional tax”) is therefore essentially only about activities, including those engaged here in the debate as to whether s. 132(3) or s. 150(1) applied in relation to them (para. 40). The fact that other ETA provisions raised by the Crown had more exacting separate-person language only demonstrated that they were addressing more difficult issues that required the full bench press. For instance, respecting s. 132(4), he stated (at para. 42):

[T]he reference to two separate persons in subsection 132(4) can be explained by the fact that two permanent establishments are involved – one in Canada and one outside Canada – neither of which are legal persons on their own account, with the result that each had to be deemed to be a person that is separate from the other in order for cross-border supplies between them to be recognized. In contrast, the “resident person” referred to at the beginning of subsection 132(3) is a legal person on its own account so that all that was needed in order to recognize cross-border supplies to or from its permanent establishment, was to deem that person to be a non-resident person with respect to the activities carried on through this permanent establishment. The converse logic holds true for the “non-resident person” referred to at the beginning of subsection 132(2) and cross-border supplies between the permanent establishment in Canada and a person outside Canada.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 132 - Subsection 132(3) a non-resident PE had deemed separate person status sufficient to insulate it from an ETA s. 150 election 305
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Closely Related Group definition has the effect of extending s. 150 election to exported supplies of Canadian PEs of non-resident insurers 189
Tax Topics - Excise Tax Act - Section 150 - Subsection 150(2) s. 150(2) amendment was required because of the risk of taxpayers arguing otherwise 469
Tax Topics - Statutory Interpretation - Ordinary Meaning ambiguity can arise on consideration of how the provision interacts with another 172
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply no supplies between PEs of the same person in the absence of s. 132(4) 70

Subsection 132(6)

Commentary

Application of s. 132(6) to ILP with Canadian GP

Draft s. 132(6) provides that, subject to s. 132(2), an investment limited partnership (ILP) is deemed to not be resident in Canada at any time if, at that time, the total value of all interests in it held by non-resident members (other than prescribed members) is 95% or more of the total value of all interests in it.

A limited partnership typically has a single general partner, who under the limited partnership agreement and in accordance with the law governing limited partnerships has sole responsibility for managing the business and property of the limited partnership. S. 132(1)(b) deems such a partnership to be resident in Canada if its general partner is resident in Canada (which, under s. 132(1)(a), will be the case if it is governed by one of the Canadian companies acts, and also will be the case if its central management and control, as described in the Anglo-Canadian income tax jurisprudence, is in Canada.)

Subject to the exceptions under s. 132(2) and for prescribed members, the effect of s. 132(6) will be to deem such a limited partnership (that is an ILP) to not be resident in Canada, notwithstanding the residence of its general partner in Canada, if all or most (95% or more, measured by relative value) of the limited partnership interests in the ILP are held by non-residents.

95% test

A "prescribed member" is defined in draft s. 4.1 of the Financial Services and Financial Institutions (GST/HST) Regulations to refer to:

  • a non-resident trust if the total value of the assets of the trust in which one or more residents of Canada have a beneficial interest is more than 5% of the total value of the assets of the trust; and
  • a non-resident limited partnership if the total value of all interest in the LP of persons resident in Canadas is more than 5% of the total value of all interest in the LP.

The first branch is defectively drafted. The likely intent is to measure the relative value of the interests in the trust of the residents compared to that of all the beneficiaries. In a common law jurisdiction, each beneficiary would likely have a beneficial interest in all the assets of the trust.

Neither branch, unlike somewhat comparable income tax tests, deals with such valuation issues as minority discount and the effect of voting rights.

The valuation exercise required for application of the 95% test may be fraught if the interests of the respective partners are not proportionate as to their participation in profits and on liquidation.

Targeted effects of s. 132(6)

The draft s. 132(6) deeming rule appears to be intended to have two principal effects.

First, a general partner distribution, which otherwise might be deemed by draft s. 272.1(8) (when read in conjunction with s. 272.1(3)) to be consideration for a taxable supply of management or administrative services, as well as any separate fee by it or an affiliated Canadian corporation for management or administrative services could qualify as a zero-rated supply under Sched. VI, Pt. V, s. 7 (or 23). In this regard, the July 22, 2016 Consultation Paper of the Department of Finance stated:

As a non-resident, the investment plan may be able to benefit from the zero-rating rules in Part V of Schedule VI of the ETA.

Second, an ILP (which by virtue of draft s. 149(5)(f.1), would otherwise be deemed to be an “investment plan” and, thus, a “listed financial institution” and a “financial institution”) will be deemed by s. 217.1(1)(b)(i) to be a qualifying taxpayer if it is resident in Canada, even if a majority of its partners are non-resident. As a qualifying taxpayer, it would be subject to a requirement to self-assess GST under s. 218.01(b) on its “qualifying consideration” for the year (as defined in s. 217, and assuming that it had not made an election under s. 217.2(1) to be subject to tax on its internal and external charges for the year), so that it potentially would be subject to GST on its deductible outlays or expenses made or incurred outside Canada as described in s. 217.1(2). An ILP would also be deemed by the draft addition to the definition of ”distributed investment plan” in s. 1(1) of the SLFI Regs. to be a selected listed financial institution if (as per s. 9 of the SLFI Regs.) it had a permanent establishment (as broadly defined in s. 3(e) of the SLFI Regs. to refer to provincial residence of any investor or a province in which the fund’s units are qualified to be distributed) in a participating province and in at least one other province. As a SLFI, it generally would be subject to additional provincial HST (or under the harmonized Quebec rules, additional QST) based on such residence of its investors, e.g. under SLFI Reg. 32 and s. 225.2(2). Accordingly, draft s. 132(6) would effectively exempt an ILP from being considered to be a qualifying taxpayer if (as discussed further below) it did not (as per s. 217.1(1)(b)(ii)) have a qualifying establishment in Canada.

Scope of s. 132(2) exclusion

The exclusion in s. 132(2) deems a non-resident person to be resident in Canada in respect of activities carried on by it through a permanent establishment in Canada. Para. (a) of the definition of a permanent establishment contains a truncated reference to the test of a fixed place of business (including specific enumerations) found in most of Canada’s income tax Treaties as well as in Part IV of the Income Tax Regulations. Para. (b) of that definition departs from the usual wording of the dependent agent wording of the definition in most of such Treaties (which, subject to exceptions, deem a dependent agent to be a permanent establishment if it “has, and habitually exercise in [Canada], an authority to conclude contracts in the name of the [non-resident] enterprise”) in providing that a permanent establishment (also) means:

a fixed place of business of another person (other than a broker, general commission agent or other independent agent acting in the ordinary course of business) who is acting in Canada on behalf of the particular person and through whom the particular person makes supplies in the ordinary course of business.

On an expansive interpretation of para. (b), it could be considered that there is no circumstance in which an ILP, which has a Canadian-resident general partner (with personnel or agents exercising its functions qua general partner using a Canadian office of the general partner), will be deemed by s. 132(6) to not be resident in Canada. On this view, essentially all the activities of the ILP would be considered to be carried on through its general partner, so that essentially all the activities of the ILP would be considered to be carried on through the Canadian office of the general partner (viewed as a permanent establishment of the ILP), with the result that draft s. 132(6) could not apply to deem the ILP to be a non-resident of Canada.

It is understood from conversations with Department of Finance officials that the intent was for the s. 132(2) exclusion to apply only where there is a commercial activity being carried on in Canada that could represent a permanent establishment of the investment limited partnership, for example, the holding of a piece of commercial real estate. In other words, the mere acting of the general partner in Canada qua general partner should not engage the application of the s. 132(2) exclusion to the ILP even though the resident general partner will almost invariably be using a Canadian office in doing so. In the view of the Department of Finance, it would undercut the purpose of the draft s. 132(6) rule if the exclusion in s. 132(2) were given an expansive interpretation.

This view is consistent with the fact that a partnership is a person for GST/HST purposes. On this basis, the relationship between the general partner and the limited partnership should be disregarded for such purposes, so that the activities of the general partner in acting on behalf of the limited partnership should be disregarded for purposes of applying para. (b) of the permanent establishment definition. On the other hand, a commercial real estate property held for the partnership could not be disregarded on this basis.

Essentially the same point arises under s. 217.1(1)(b)(ii). The purpose of permitting an ILP to be excluded from being considered to be a resident of Canada, as described in s. 217.1(1)(b)(i), so that it would not be a qualifying taxpayer, would be undercut if, by virtue of its general partner having an office in Canada, it were necessarily regarded as having a permanent establishment (and, thus, a qualifying establishment as defined in s. 217), and therefore continuing to be deemed to be a qualifying taxpayer under s. 217.1(1)(b)(ii).

Scope of zero-rating exclusion for acting as agent

A similar point also arises in relation to the service of acting as an agent of a non-resident person being excluded (under s. 7(f)) from the zero-rating provided under Sched. VI, Pt. V, s. 7 for a supply of services made to a non-resident person. (A supply of a service of acting as an agent of a non-resident generally is not zero-rated under Sched. VI, Pt. V, s. 5, if the service is in respect of supplies made in Canada that are not otherwise zero-rated.) As a matter of common law, everything done by a general partner is as agent for the other partners, so that in this broad sense, the zero-rating under Sched. VI, Pt. V, s. 7 would not be available for the supply of the services by the general partner to the ILP. However, in order to not eviscerate the intended scope of the benefit of draft s. 132(6), it likely would be appropriate to regard the services of the general partner to have their predominant character of management or administrative services, so that, under the single supply doctrine, the exclusion for agency services would not apply.

Administrative Policy

GST/HST Notice 308 GST/HST and Investment Limited Partnerships July 2018

Deemed non-resident ILP under s. 132(6) may be deemed resident under s. 132(2) (p. 18)

[A]n ILP that would be deemed to not be resident in Canada under proposed subsection 132(6) may, nevertheless, be deemed to be resident in Canada under subsection 132(2) in respect of, but only in respect of, its activities carried on through a permanent establishment it has in Canada. For example, if an ILP that would be deemed under proposed subsection 132(6) to not be resident in Canada has a permanent establishment in Canada through which it makes supplies (for example, renting office space in real property situated in Canada), the ILP would be deemed to be resident in Canada in respect of such supplies under subsection 132(2).