Territorial Limits

Table of Contents


1068754 Alberta Ltd., trustee of DGGMC Bitton Trust v. ARQ, 2018 QCCA 8 (Quebec Court of Appeal), aff'd 2019 SCC 37

communication to bank branch outside Quebec did not constitute a significant act outside Quebec

The ARQ, which was seeking to establish that the central management and control of an Alberta trust was in Quebec, issued a requirement to a Calgary branch of the Banque Nationale du Canada (“BNC”) for various bank records respecting the trust under the Quebec equivalent of ITA s. 231.2(1). The requirement was sent directly to the branch rather than to the BNC head office because this was required under s. 462(2) of the Bank Act. In finding that the ARQ had not exceeded its territorial competence in making this requirement, Hogue JCA stated:

Here we are not concerned with … a seizure outside of Quebec which, it is true, could require the seizing party to approach an authority of the foreign State with a view to obtaining its collaboration in order to proceed. …

The communication of the requirement to BNC through one of its branches situated outside Quebec is the sole external element that is present here. However, such communication is purely accessory and is insufficient to conclude that the ARQ exercised its powers of taxation or of audit outside of Quebec or exceeded its competence.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 231.2 - Subsection 231.2(1) the ARQ did not exceed its Quebec-based audit authority when it issued a s. 231.2 demand to a Calgary bank branch 470

Exida.Com Limited Liability Company v. Canada, 2010 DTC 5101, 2010 FCA 159

no filing requirement if no connection with Canada

Nöel, J.A. noted (at para. 23) that when s. 150(1) formerly simply provided that in the case of a corporation, a return shall be filed by a corporation for each taxation year, "with respect to non-resident corporations, the obligation to file could only extend to those that had some connection with Canada. To construe the provision as applying in the absence of any connection with Canada would give it a reach that could not have been intended."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 162 - Subsection 162(2.1) no substantive tax liability 66
Tax Topics - Income Tax Act - Section 162 - Subsection 162(7) "penalty" does not include nil penalty 92
Tax Topics - Statutory Interpretation - Ordinary Meaning purposive interpretation must be consistent with words 93

R. v. Hape, 2007 SCC 26, [2007] 2 S.C.R. 292

criminal investigation within another country is not within Parliament's authority

RCMP officers commenced an investigation of the accused, a Canadian businessman, for suspected money laundering activities. They sought permission from the Turks and Caicos Islands authorities to conduct parts of their investigation on the Islands where the accused’s investment company is located. A detective of the Turks and Caicos police force, who was in charge of criminal investigations on the Islands, agreed to allow the RCMP to continue the investigation on Turks and Caicos territory, but on the basis that he would be in charge. During a one-year period, the RCMP officers conducted searches of the accused’s office on the Islands and on each occasion such police officer was with them. There were no warrants authorizing the perimeter searches of the accused’s office, but the RCMP officers understood warrants to be in place for the covert entries.

The Court held (at paras. 88, 90) that s. 8 of the Charter did not generally apply to searches and seizures in other countries. Rather, the only reasonable approach is to apply the law of the state in which the activities occur, subject to the Charter’s fair trial safeguards and to the limits on comity that may prevent Canadian officers from participating in activities that, though authorized by the laws of another state, would cause Canada to be in violation of its international obligations in respect of human rights.

Further (paras. 53, 56, 68), while Parliament has clear constitutional authority to pass legislation governing conduct by Canadians or non‑Canadians outside Canada, its ability to pass extraterritorial legislation is informed by the binding customary principles of territorial sovereign equality and non‑intervention, by the comity of nations, and by the limits of international law to the extent that they are not incompatible with domestic law. Since it is a well‑established principle of statutory interpretation that legislation will be presumed to conform to international law, in interpreting the scope of application of the Charter, a court should seek to ensure compliance with Canada’s binding obligations under international law where the express words are capable of supporting such a construction.

A criminal investigation in the territory of another state cannot be a matter within the authority of Parliament or the provincial legislatures because they have no jurisdiction to authorize enforcement abroad. Under international law, each state’s exercise of sovereignty within its territory is dependent on the right to be free from intrusion by other states in its affairs and the duty of every other state to refrain from interference. In some cases, the evidence may establish that the foreign state consented to the exercise of Canadian enforcement jurisdiction within its territory. Where, as here, the host state consents, the Charter can apply to the activities of Canadian officers in foreign investigations, so that the investigation would be a matter within the authority of Parliament and would fall within the scope of s. 32(1) of the Charter.

Locations of other summaries Wordcount
Tax Topics - Other Legislation/Constitution - Charter (Constitution Act, 1982) - Section 8 Charter generally does not apply to searches outside Canada 378

Society of Composers, Authors and Music Publishers of Canada v. Canadian Assn. of Internet Providers, [2004] 2 S.C.R. 427, 2004 SCC 45

presumption against extra-territorial effect

Binnie J. stated (at para. 54):

"While the Parliament of Canada, unlike the legislatures of the Provinces, has the legislative competence to enact laws having extraterritorial effect, it is presumed not to intend to do so, in the absence of clear words or necessary implication to the contrary ..."

Oceanspan Carriers Ltd. v. The Queen, 85 DTC 5621, [1986] 1 CTC 114 (FCTD), aff'd in part 87 DTC 5102, [1987] 1 CTC 210 (FCA)

non-application to previous non-resident existence

The following principle was applied by Rouleau, J.: "The mere fact of becoming a resident does not give the Minister - or Parliament - jurisdiction over the previous life or conduct of a corporate taxpayer." [CR.: 248(1) - "Income Bond"]

Clark v. Oceanic Contractors Inc., [1982] BTC 417, [1983] 1 All E.R. 133 (HL)

presumption against application to non-subjects

"[U]nless the contrary is expressly enacted or so plainly implied that the courts must give effect to it, United Kingdom legislation is applicable only to British subjects or to foreigners who by coming to the United Kingdom, whether for a short or a long time, have made themselves subject to British jurisdiction."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 153 - Subsection 153(1) - Paragraph 153(1)(a) carrying on trade was sufficient connection to jurisdiction 115

United States of America v. Harden, 63 DTC 1276, [1963] CTC 450, [1963] S.C.R. 366

revenue rule

The Court found that the principle that foreign states cannot directly or indirectly enforce their tax claims in Canada applied to prevent a foreign state (here, the U.S.A.) from taking a judgment of its own courts and bringing suit in Canada on that judgment.

Locations of other summaries Wordcount
Tax Topics - Statutory Interpretation - Revenue Rule U.S. tax judgment not enforceable in Canada 128

See Also

Agence du revenu du Québec v. Cristofaro, 2021 QCCA 1025

Oceanspan applied to preclude credit transfer from a non-taxpayer

In 2003-0026827, CRA applied Oceanspan to find that a non-resident student who has no Canadian sources of income is precluded from transferring her unutilized tuition credits to her resident father under ITA s. 118.9 because:

an individual who is not resident in Canada and who has no Canadian source income would not be entitled to the tuition and education tax credits. The individual is not liable to pay tax in Canada, and therefore has no need to utilize the provisions permitting the tax credits.

Here, a similar approach was followed in finding that an Ontario-resident, who paid Quebec income taxes because a portion of his professional firm’s practice was in Quebec, could not be transferred a tuition credit (under the Quebec equivalent of s. 118.9) by his daughter studying in Scotland, who was resident in Ontario and had no Quebec sources of income. In addition to referring to Oceanspan as “particularly illuminating,” the Court quoted with approval the reasoning of Monaghan J in Marino (finding that U.S. tuition generated by a student while not a Canadian resident and without a source of income under s. 2(3) could not be carried forward to when he became a Canadian resident).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 118.9 Oceanspan applied to find that a non-resident with no sources of income in Quebec could not transfer a tax credit to a Quebec taxpayer 302

Jimenez, R. (On the Application of) v The First Tier Tribunal (Tax Chamber), [2019] EWCA Civ 51

a demand for information issued to a former UK resident was valid

The UK tax legislation contained a blanket provision stating:

An officer of Revenue and Customs may by notice in writing require a person ("the taxpayer")—

(a) to provide information, or

(b) to produce a document,

if the information or document is reasonably required by the officer for the purpose of checking the taxpayer's tax position.

The taxpayer was a Dubai resident who also was a UK national and former UK resident. HMRC was investigating his past and present tax positions including as to when he ceased to be a UK resident, and issued a notice to him at his Dubai address asking him to produce banking information and a schedule of his visits to the UK over a nine-year period.

The Court found the notice to be valid for U.K purposes. Leggatt LJ stated (at paras. 52-54):

Counsel for Mr Jimenez … relied on a distinction … adopted … [by Rossiter CJ] in Oroville Reman & Reloadbetween documents of notice that merely involve the supply of information with no threat of penalties in the event of non-compliance and documents involving a compulsory process or containing a command. They submitted that a document of the latter kind, such as the notice issued in this case which explicitly threatened penalties if Mr Jimenez did not comply with it, must be regarded as an unlawful exercise of enforcement jurisdiction.

… I do not accept that sending a notice by post to a person in a foreign state requiring him to produce information that is reasonably required for the purpose of checking his tax position in the UK violates the principle of state sovereignty. Such a measure does not involve the performance of any official act within the territory of another state – as would, for example, sending an officer of Revenue and Customs to enter the person's business premises in a foreign state and inspect business documents that are on the premises … .

[T]he imposition of a civil penalty … for failure to comply with such a taxpayer notice would [not] involve an exercise of enforcement jurisdiction … provided that no steps are taken to seek to enforce the penalty in a foreign state.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 231.1 - Subsection 231.1(1) - Paragraph 231.1(1)(d) sending a demand for information to a former UK resident did not entail an exercise of extraterritorial enforcement jurisdiction but merely entailed the potential imposition of UK penalties against any UK assets 663

Oroville Reman & Reload Inc. v. Canada, 2016 TCC 75

an assessment of a U.S. softwood importer who did not carry on business in Canada was an unauthorized extraterritorial exercise of enforcement jurisdiction

The taxpayer was a U.S. subsidiary of a Canadian lumber producer. The taxpayer did not carry on business in Canada and was engaged exclusively in the U.S. in reloading, repackaging and remanufacturing servicers for softwood lumber products. From 2002 to 2006, the U.S. s collected approximately US $5.4 billion in duties in relation to imports of Canadian softwood lumber products into the United States. Although a few – including Oroville – were U.S. companies, the vast majority of the importers of record who paid the duties were Canadian lumber producers.

On September 12, 2006, Canada and the U.S. settled the softwood lumber dispute respecting such duties under which it was agreed that the U.S. would refund all duty deposits to the importers of record, with interest, and Canada would pay to certain specified parties in the U.S. a total of US$1B. However, Canada then passed legislation (the “SLPECA”) to impose a tax of on the refunds received from the U.S. (including those received by the small minority, including the taxpayer, who were not Canadian lumber producers.)

In allowing the taxpayer’s appeal against an assessment of such tax, Rossiter CJ stated (at paras. 17, 27-28).

Canada can exercise its prescriptive jurisdiction extraterritorially where it does so in accordance with binding customary principles, or even in contravention of these principles where Parliament shows an an unequivocal intention to do so. However, Canada can exercise enforcement jurisdiction in a foreign state only with the foreign state’s consent.

As mentioned, enforcement jurisdiction can be exercised in a foreign state only with that state’s consent. Here, there is no indication, direct or indirect, of any consent by the USA to Canada giving them the right to collect monies that Canada asserts must be paid under the legislation in question against the Appellant in the USA.

In response to the first issue raised by the parties, I find that Canada, contrary to international law, tried to enforce the SLPECA against the Appellant.

He then stated (at paras. 36, 38, 42):

To recapitulate, the presumption of conformity in this case presumes that the SLPECA will conform to the principles of sovereign equality, non-intervention, and comity. This can only be so if the application of the SLPECA to the Appellant is justified on the ground of territoriality. …

Translated to the case at bar, the question is whether there is a "real and substantial link" between Canada and the activities giving rise Canada's claim for tax.

I conclude there is no "real and substantial link".


Baker, "The Trans-National Enforcement of Tax Liabilities", 1993 British Tax Review, No. 5, p. 313.