Regulation 805

Cases

Gupta v. The Queen, 2000 DTC 6326 (FCA)

house rents were property income

Rental income received by the taxpayer from a house represented income from property rather than income from a business.

The Queen v. Canada Southern Railway Co., 86 DTC 6097, [1986] 1 CTC 284 (FCA)

The function of regulation 805(1) is to exempt from withholding tax amounts that are subject to taxation under Part I by virtue of falling within subparagraph 115(1)(a)(ii) (income from businesses carried on in Canada). Since dividends credited by the taxpayer to a controlling U.S. shareholder ("Penn Central") were property income to Penn Central, and thus not subject to Part I tax, the exemption in Regulation 805(1) was not available, notwithstanding that the amount of dividends was periodically offset against rental payments which Penn Central owed to the taxpayer in respect of a railway business which Penn Central carried on in Canada.

Twentieth Century Fox Film Corp. v. The Queen, 85 DTC 5513, [1985] 2 CTC 328 (FCTD)

film revenues were reasonably attributable to a Canadian distributorship business notwithstanding they were also attributable to U.S. movie production

The taxpayer was a Delaware corporation which produced and distributed films, TV programs and music. The Canadian distribution was handled by its Canadian branch. Addy J found that all of the film-rental revenues of the Canadian branch of the taxpayer were exempted from withholding tax under ITA s. 212(5) by Reg. 802 or (if Reg. 802 did not apply to the exclusion of Reg. 805) under Reg. 805(1). Addy J stated (at p. 5521) that "the rental of films in Canada as in the United States forms an essential and integral part of the business of the plaintiff and that the revenues from film rentals must necessarily be considered as reasonably attributable to the business which was carried on in Canada." In particular, although "none of the production costs are incurred here and therefore none of the benefits directly attributable to the quality of production originate here…this does not mean...that the revenues themselves are not to be considered as reasonably attributable to an active business of the plaintiff carried on in Canada nor does it mean that some proportion of the revenues is to be excluded" (p. 5519).

See summary under Reg. 802.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 115 - Subsection 115(1) - Paragraph 115(1)(a) - Subparagraph 115(1)(a)(ii) business conducted through agent/film distribution in Canada (without production) was Cdn business 188
Tax Topics - Income Tax Regulations - Regulation 802 178

See Also

Arbutus Gardens Apartments Corp. v. The Queen, 98 DTC 1795, [1998] 3 CTC 2972 (TCC)

apartment complex requiring significant property management generated business income

A limited partnership having non-resident limited partners was found to be carrying on business for purposes of s. 2(3) of the Act and Regulation 805 given that the apartment complex owned by it (consisting of seven buildings) was operated in a manner that involved the hiring of five full-time managers, two full-time maintenance persons, two full-time gardeners and entailed the provision of far more services to the tenants (many of whom were seniors) than would normally be the case in an apartment building. Accordingly, rents received were not subject to withholding tax. Bowman TCJ. noted (at p. 1798) that "the fact that the income is rental income and on one view of the matter might be seen as income from property is not inconsistent with the income being from the carrying on of a business".

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 2 - Subsection 2(3) - Paragraph 2(3)(b) apartment complex requiring 5 managers was business 134

Administrative Policy

23 January 2015 External T.I. 2013-0509771E5 - Oil & gas payments made to U.S. resident

application to resource royalties

Mr. A, a U.S. resident, grants the right to drill for or take the oil & gas from his Canadian freehold property to a Canadian company, in consideration inter alia for annual royalties payable out of any oil & gas production.

After noting that per Reg. 8201, the meaning of "permanent establishment" is taken from Art. V of the Canada- U.S. Treaty, CRA stated:

Therefore, if Mr. A carries on a business through a PE in Canada and the oil & gas royalties are attributable to the PE, Part XIII… of the Act does not apply, and the company is not required to withhold tax… . However, the company is required to issue an NR4 to Mr. A, and use the exemption code "Q"… .

If Mr. A carries on a business described in any of paragraphs (a) to (g) of the definition of "principal business corporation" in subsection 66(15) of the Act, and Mr. A receives royalties in respect of Canadian resource property that are not attributable to that business, the royalties will nevertheless be taxable under Part I of the Act pursuant to subparagraph 115(1)(a)(iii.3). In that case, Part XIII will not apply to the royalties by virtue of paragraph 805(b)… . The company is required to… use the exemption code "S" … .

Where neither paragraph 805(a) nor (b)… apply, the annual royalties paid to Mr. A by the Canadian company are taxable to him under…subparagraph 212(1)(d)(v)… .

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 115 - Subsection 115(1) - Paragraph 115(1)(a) - Subparagraph 115(1)(a)(iii.1) negative CCDE pool for non-resident individual 176
Tax Topics - Income Tax Act - Section 66.4 - Subsection 66.4(5) - F FMV addition and subtraction where drilling rights are granted for royalty 143
Tax Topics - Treaties - Income Tax Conventions - Article 12 non-application of Art. 12 of US Treaty to resource royalties 142
Tax Topics - Treaties - Income Tax Conventions - Article 6 negative CCDE gain from grant of oil and gas royalty not exempt under US Treaty 180

14 July 1994 Internal T.I. 9407377 - NON-RESIDENT PARTNER & 216 ELECTION (7558-3)

If a partnership is determined to be carrying on business in Canada, there will be no Part XIII tax liability in respect of rent paid to the partnership on the presumption that a non-resident partner is considered to be carrying on business through a permanent establishment in Canada. On the other hand, if it is determined that the partnership is earning property income rather than business income, the tenants will be required to withhold Part XIII tax at the rate of 25% on the gross rental payments made to the partnerships from the point of time when the partnership ceases to be a Canadian Partnership.

93 C.P.T.J. - Q.27

Where a non-resident has working interests in oil and gas wells which represent permanent establishments in Canada through which it carries on business, and also has resource royalty income from Canada, the royalties if not attributable to the business carried on in Canada will be included in its income under s. 115(1)(a)(iii.3) and, therefore, would be included in income referred to in Regulation 805(1). However, the payor of the royalties would not be relieved from its withholding tax obligation unless a waiver were obtained.

Articles

Michel Ranger, Rhonda Rudick, "Federal and Provincial Tax Considerations Relating to Non-Resident Investment in Canadian Real Estate", 2019 Conference Report (Canadian Tax Foundation), 32:1 – 39

Factual distinction between business and property income for corporation (p. 32:4)

In the case of a corporation whose sole activity is the ownership of such property, there is a presumption that a corporation is formed for the purpose of carrying on business; accordingly, where the corporation has only one activity or investment—regardless of its nature—the corporation may be held to be carrying on a business in respect of such single activity or investment. [Footnote 17: Burri v. The Queen, 85 DTC 5287 (FCTD) … . See also Matlas SA v. The Queen, 94 DTC 1586 (TCC) and Canadian Marconi v. R, [1986] 2 S.C.R. 522. See also Canemro Anstalt v. La Sous-Ministre du Revenu de la Province de Québec (1987), court file no. 500-02-020973-850 (QC Prov. Ct.), where in circumstances quite similar to those in Burri, a Quebec court found that apartment building operations owned by a foreign corporation gave rise to income from business and not from property but without, per se, relying on the corporate presumption. See also Étoile Immobilière SA v. The Queen, 92 DTC 1984 (TCC), in which a corporate taxpayer was found to be carrying on business in respect of a residential property notwithstanding that a third-party manager was engaged to manage the property. See also Valec SA v. The Queen, 98 DTC 1266 (TCC), in which the court reaffirmed the presumption in Burri and Marconi with respect to rental income earned by a non-resident corporation, but ultimately did not rely on that presumption in finding that the rental income constituted business income. Also note the case of Malenfant v. The Queen, 92 DTC 2081 (TCC), in which the court found that income from the operation of a hotel constituted income from property (that is rent), rather than income from services. The CRA does not necessarily agree with this decision.] The Canada Revenue Agency (CRA) will typically look at the level of services rendered. Where the services are basic and typical of what landlords of similar properties would provide, the CRA will generally take the position that the income constitutes property income. [Footnote 18 See IT-420R3 … at paragraph 12 and IT-434R … at paragraphs 2-7.] Where property is leased to a single tenant on a triple net lease basis, the CRA will generally consider that the income from such property is also property income.

Ian V. MacInnis, "Potential Double Taxation of Rental Income to Non-Residents?", CCH Tax Topics, No. 1965, 5 November 2009, p. 1.

Scheuermann, "Income and Commodity Tax Aspects of Acquiring and Exploiting Technology", 1991 Conference Report, c. 45.

Discussion of the potential for double taxation where the non-resident does not have a permanent establishment in Canada, of the interplay with Regulation 802, and of the availability of a waiver.

Walker, "Effect of Recent Amendments to Regulation 805 on Non-Residents Earning Passive Income in Canada", Canadian Current Tax, November, 1989

Discussion of potential double taxation problem.

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