Regulation 400

Mr. X, who has been living in Quebec and commuting to the sole permanent establishment of his employer in Quebec, from which he receives his remuneration, has now agreed with his employer that he will telework at his cottage in Ontario for three days a week, and continue commuting to work at his employer's facility in Quebec two days a week. He has the authority to enter into contracts for his employer.

Regarding whether Reg. 400(2) would deem Mr. X's employer to have an Ontario permanent establishment at Mr. X’s cottage, CRA indicated that the “fact that an employee works from home is generally not sufficient to create a fixed place of business of the employer in the province,” and then stated, regarding Reg. 400(2)(b):

[T]he fact that an employee of a corporation can contract for the employer from the employee’s home should not be a factor that, in and of itself, creates a permanent establishment in a particular province. In other words, in order for the presumption in [Reg.] 400(2)(b) to apply, the employee must not only have general authority to contract for the employer, but the employer must also carryon business in the province through the employee established there. The issues of whether the employee is established in the province where the cottage is located and whether Mr. X's employer carries on business through him in that province are questions of fact that can only be resolved after a full examination of all the relevant facts, acts, circumstances and documents.

A Quebec company (Canco) opened an office in Ontario which Ontario sales employees would use on occasion for meetings and calls but with no merchandise for sale being kept there and with most decisions made at the Quebec headquarters. After noting that the office would not be a fixed place of business under the preamble to Reg. 400(2) if only incidental functions to the Canco business were carried on there, CCRA went on to indicate that Reg. 400(2)(b) did not appear to be satisfied, stating:

Under paragraph 400(2)(b) of the Regulations, a corporation is deemed to have a permanent establishment at the particular place of business of an employee of the corporation through whom it carries on business if either of the following two conditions are satisfied: the employee has general authority to enter into contracts for the corporation, or the employee has a stock of merchandise owned by the corporation from which the employee regularly fills orders received. Regarding the first condition, the courts have determined that it is not satisfied where the employee can accept orders from existing customers but cannot open new accounts (see Ronson Art Metal Works (Canada) Limited v. M.N.R., supra, and Chicago Blower (Canada) Limited v. M.N.R., 66 DTC 471 (T.A.B.)), or where orders must be approved by the corporation (see Canadian Thermos Products Limited v. M.N.R., 61 DTC 471 (T.A.B.)). M.N.R., 61 DTC 169 (T.A.B.), Sunbeam Corporation (Canada) Ltd. v. M.N.R., supra, and Chicago Blower (Canada) Limited v. M.N.R., supra). As for the second condition, it was decided in Canadian Thermos Products Limited v. M.N.R., supra, that the fact of an employee occasionally filling orders from an employer's stock of merchandise was insufficient. …

[A]ll decisions of a commercial nature (opening of accounts, special agreements, price lists, discounts, promotions, etc.) are made in Quebec and … employees located in Ontario do not have the general authority to contract on behalf of Canco. …[A]ll merchandise and promotions for Canco's customers are shipped from Canco's main warehouse in Quebec … .

The Charity, which was incorporated in Participating Province X, was found not to have a permanent establishment in Participating Province Y, i.e., what, by virtue of s. 2(2) of the New Harmonized Value-added Tax System Regulations, No. 2, would be a permanent establishment under Part IV of the ITA Regs if Charity's activities were a business.

In commenting on Reg. 400(2), CRA stated:

…A fixed place of activities includes a determined or ascertained space in which there is some presence or routine over which the charity has some degree of control and in which some undertaking or operations of the charity occur. … It does not mean that the place of activities must exist for a long time or be located in a durable building; for instance, a temporary field office on a construction site could be a fixed place of activities.

…Generally, where a charity uses (rented or owned) substantial machinery or equipment in a province either for 30 continuous days or for 90 cumulative days in a 12-month period, the charity would meet [the] requirement [in Reg. 400(2)(e)].

A non-resident corporation claimed a deduction under subsection 124(1) of the Income Tax Act (the "Act") for its XXXXXXXXXX taxation year. In addition, you informed us that the Equipment used by a non-resident corporation in connection with the performances by an artist were considered by the TSO to be of sufficient importance to constitute a permanent establishment for the purposes of Reg. 400(2)(e) at each of the venues where it mounted performances.

Initially, the Directorate considered that “the equipment or machinery must be used either for a period of more than 30 consecutive days per site or project or for a period of more than 90 consecutive days within a 12-month period for all projects,” so that the venues did not qualify as PEs. However, it subsequently determined that its policy was that if the taxpayer reported for federal and provincial purposes as having PEs on the basis of a shorter presence at the venues, it should be treated as being “deemed to have a permanent establishment for its XXXXXXXXXX taxation year in each province in which performances were mounted for the purposes of paragraph 400(2)(e) of the Regulations and the application of subsection 124(1) of the Act.”

A U.S.-incorporated resident of the U.S. for Treaty purposes (“Non-Resident Corporation”), whose shares were 50% owned by a non-resident artist whom it represented, presented various shows in Canadian provinces, and received a share of the revenues from the promoter. For each show, it (through its employees) had to install the stage, lights, sound system, etc. on the day of the show, and used an number of trailer trucks to transport the stage equipment. The tasks listed were performed by employees of Non-Resident Corporation.

After finding that Non-Resident Corporation did not have a fixed place of business at the various arenas where the shows were mounted, the Directorate then considered whether this result was altered by Reg. 400(2)(e), stating:

[I]n order to deem a permanent establishment in a province or jurisdiction for the purposes of paragraph 400(2)(e) …, generally the equipment or machinery must be used either for a period of more than 30 consecutive days per site or project or for a period of more than 90 cumulative days within a 12-month period for all projects. Since … the Non-Resident Corporation used the concert equipment in each of the provinces where performances were produced for a period of less than 30 consecutive days and throughout Canada for a period of less than 90 cumulative days, we are of the view that it is not deemed to have a permanent establishment in any of the provinces … .

A corporation with its head office in the province of Quebec uses 10 sets of equipment, each of which includes a truck and equipment. Although mostly used in Quebec, an average of four of these sets are called upon to work primarily in two other provinces. A set is moved from one customer to another and its stay with a customer can last from one day to 3 weeks. In finding that such equipment likely gave rise to permanent establishments in those other provinces pursuant to Reg. 400(2)(e), CCRA stated:

[A] permanent establishment could be found to exist in a province where a corporation uses substantial equipment in that province at any time in its taxation year, even if the equipment in question is moved frequently from one place to another. Assuming that the equipment on a single truck would qualify as substantial in the circumstances, which we find entirely plausible in the circumstances, the condition in paragraph (e) would be satisfied if it were accepted that at some point in the corporation's taxation year (even if only for a day), the corporation used substantial machinery or equipment at a particular location.