1. Management fees
Canada’s Income Tax Act exempts management fees from Part XIII tax if the non-resident service provider deals at arm’s length with the Canadian payor and provides the service in the ordinary course of its business.
Alternatively, an exemption is available if the fee is charged to reimburse the non-resident for specific expenses incurred for the purpose of performing services for the benefit of the Canadian-resident payor. Such expenses must be particularized (an inclusive fee is not acceptable), there cannot be a mark-up and receipts must be available to substantiate the expenses.
If neither exemption is available then, under Canada’s typical tax treaty, management fees are treated as business profits and are wholly exempt from Canadian income tax if they are not attributable to a Canadian permanent establishment maintained by the non-resident.
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