Non-Residents Doing Business in Canada
Face Increased Scrutiny
By Melanie L. Campbell, CPA, CA, and Sherri DuMerton, CPA, CA
Melanie Campbell is a manager
with PricewaterhouseCoopers
in Vancouver, and is part of the
technology tax services group,
which specializes in providing
tax consulting to private and
public companies.
Sherri DuMerton is a manager
with PricewaterhouseCoopers
in Vancouver, and is part of
the technology tax services
group, which specializes in
providing tax consulting to
private and public companies.
W
ith taxation authorities, including those in Canada, increasingly looking for ways to augment their cash flows,
the taxation of non-residents has become an area of focus
for many jurisdictions. Non-residents doing business in Canada also
face increased scrutiny as a result of significant (and ongoing) changes
made to the transfer pricing landscape, starting in 2013.
Contributing to these changes is the Organization for Economic
Development (OECD), which has published an action plan to address
the perceived flaws in the international tax rules in order to address
tax base erosion and profit shifting (BEPS).1 In its 2014 federal budget,
Canada signalled that the OECD mandate around BEPS is an area of
focus for the Department of Finance.
With the increased attention on non-residents doing business in
Canada, non-resident persons/companies need to make sure they
understand the current framework and the associated taxation and
filing requirements.
“Carrying on business” in Canada
Generally, a non-resident that carries on business in Canada is subject to income tax on any income earned in Canada.2 The term “carrying on business” is not defined for Canadian tax purposes in the
Income Tax Act (the Act or ITA),3 except in the extended meaning. As
described in the extended meaning, a non-resident soliciting orders
or offering anything for sale in Canada through an agent or servant4
—whether the contract or transaction is to be completed in or outside
of Canada—qualifies as carrying on business in Canada.5
Substantial jurisprudence has set out the factors to consider in determining whether a non-resident is carrying on business in Canada,
and the CRA has elaborated on these factors in its administrative policy.6 Canadian courts have generally accepted the principle that a corporation carries on