Section 120

Subsection 120(1) - Income not earned in a province

Administrative Policy

8 October 2014 Internal T.I. 2014-0539571I7 - NL tax vs Non-Res Surtax

Nfld. Offshore employment income

Is employment income earned by a non-resident individual working in the Newfoundland offshore area (NOA) subject to provincial tax or the surtax in s. 120(1)? CRA stated:

[E]mployment income earned by the non-resident employees in the NOA is not income earned in the year in a province. Therefore, the income is subject to the surtax in subsection 120(1) and is not subject to NL provincial tax.

Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Regulation 2602 - Reg. 2602(1) Nfld. Offshore employment income 65

25 July 2014 Internal T.I. 2013-0513641I7 - Deemed resident trust under subsection 94(3)

addition for s. 94 deemed trust

The Estate of a Canadian resident, with two non-resident beneficiaries and a non-resident liquidator was deemed to be resident in Canada as described in s. 94(3)(a). Would s. 120(1) apply?

After noting that the 48% addition under s. 120(1) occurs for income of an individual that is not earned in a province (defined in Part XXVI of the Regulations), Head Office stated:

[Reg.] 2601(1)… provides that if an individual resides in a particular province on the last day of a taxation year and has no income for the taxation year from a business with a permanent establishment outside the province, the individual's income earned in the taxation year in the particular province is the individual's income for the taxation year. ... Therefore… the income of the Estate for the year is not income earned in a province…[and] consequently, subsection 120(1) is applicable to the income of the Estate for the year… .

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(7.01) meaning of "maximum amount...deductible" 162
Tax Topics - Income Tax Act - Section 94 - Subsection 94(3) - Paragraph 94(3)(g) required Part XIII withholding treated like Part I instalment 147

S5-F1-C1 - Determining an Individual’s Residence Status

"An individual who is resident in more than one province on December 31 of a particular tax year will be considered to be resident only in the province in which the individual has the most significant residential ties, for purposes of computing his or her provincial tax payable."

Articles

Kevyn Nightingale, Amir Pourzakikhani, "A Federal Permanent Establishment, But Not a Provincial One", Tax Topics, Wolters Kluwer, November 3, 2016, No. 2330, p. 1

U.S. resident with Cdn Services PE only (pp. 1-2)

We recently dealt with a situation where a non-resident individual taxpayer had a Permanent Establishment ("PE") for federal tax purposes, but no PE for provincial tax purposes….CRA ultimately agreed with the position.

The taxpayer was a resident of the United States. He worked as a self-employed contractor in Canada. Substantially all of his income was earned for services physically provided in Canada. He worked at the premises of his client and at 3rd-party locations, and did not have dominion or control over any place of business in Canada. He did not habitually conclude contracts while present in Canada.

He spent more than 182 days physically present in Canada each year.

In response to [Dudney] the treaty was changed to deem a…Services PE.

Provincial tax for individuals based on factual PE, not Services PE (pp. 2-3)

Tax is levied only on income earned in the province. The meaning of that term is defined [in s. 120(4)] by importing the federal regulations, including the meaning of a "permanent establishment" (a "Factual PE"). …

Without a Factual PE, no income is allocated to a province. This is true for each of the "agreeing" provinces…

Consequently, this income is taxable in Canada, but not earned in a province. It is subject to the federal surtax, which is 48% of the federal tax otherwise payable.[under s. 120(1).] …

In our view, it's the right answer. Consider a situation where the taxpayer worked for over 182 days in Canada but did not exceed that threshold in any one province. How would one impute the PE to any province? One could create a regulation that allocates the income by days worked, as is done for employees, but there is currently no equivalent provision for a business.

Same result for non-resident corporations with only Services PE (pp. 2-3)

We believe the same is true for corporations in the general sense (excluding banks, airlines, etc. …

Ontario was not an "agreeing province" for corporate tax until 2009, and Alberta still is not. However, both provinces' definitions essentially parallel the federal one, so the result is the same.

[from p. 1 of article:]

[P]rovincial rates run from 12% to 16%. The loss of the provincial abatement effects tax at 10% [citing s. 124(1)], so this answer is unambiguously better.

Locations of other summaries Wordcount
Tax Topics - Treaties - Income Tax Conventions - Article 4 115

Subsection 120(4) - Definitions

Administrative Policy

3 December 2003 External T.I. 2003-003998 -

A trust whose beneficiaries are minor children of the shareholders of Corporation A (and who are assumed to be "specified individuals") is allocated income by a partnership which has lent funds received under a bank loan to customers of Corporation A who, in turn, use those funds to pay the premiums on insurance policies purchased from Corporation A. Such loans by the partnership would constitute the provision of property or services in support of a business carried on by a person related to the specified individuals.