Nigel Smith, Author at - Page 5 of 6

British Columbia defines a “permanent establishment” (by reference to Federal regulations) as a fixed place of business of the corporation. This specifically includes an office, a branch, a mine, an oil well, a farm, timber land, a factory, a workshop or a warehouse. The following series of rules is provided:

  • where the corporation does not have a fixed place of business, “permanent establishment” means the principal place in which the corporation’s business is conducted;
  • where a corporation carries on business through an employee or agent established in a particular place, who has general authority to contract for his employer or principal or who has a stock of merchandise owned by his employer or principal from which he regularly fills orders which he receives, the corporation shall be deemed to have a permanent establishment in that place;
  • an insurance corporation is deemed to have a permanent establishment in each province and country in which the corporation is registered or licensed to do business;
  • where a corporation, otherwise having a permanent establishment in Canada, owns land in a province, such land shall be deemed to be a permanent establishment;
  • where a corporation uses substantial machinery or equipment in a particular place at any time in a taxation year, it shall be deemed to have a permanent establishment in that place;
  • if, under the above rules, a corporation would not have a permanent establishment, the corporation is deemed to have a permanent establishment at the place designated in its incorporating documents or bylaws as its head office or registered office;
  • the fact that a corporation had business dealings through a commission agent, broker or other independent agent or maintains an office solely for the purchase of merchandise shall not of itself be held to mean that the corporation has a permanent establishment; and
  • the fact that a corporation has a subsidiary controlled corporation in a place or a subsidiary controlled corporation engaged in trade or business in a place shall not of itself be held to mean that the corporation is operating a permanent establishment in that place.

 ‹ 1. Alberta up

3. Manitoba ›


Alberta defines a “permanent establishment” as a fixed place of business of the corporation. This specifically includes an office, a branch, a mine, an oil well, a farm, timber land, a factory, a workshop or a warehouse. The following series of rules is provided:

  • if the corporation does not have a fixed place of business it means the principal place in which the corporation’s business is conducted;
  • if a corporation carries on business through an employee or agent established in a particular place, who has general authority to contract for the employer or principal or who has a stock of merchandise owned by the employer or principal from which the employee or agent regularly fills orders that the employee or agent receives, the corporation is deemed to have a permanent establishment in that place;
  • an insurance corporation is deemed to have a permanent establishment in each province and country in which the corporation is registered or licensed to do business;
  • if a corporation, otherwise having a permanent establishment in Canada, owns land in a province, that land is deemed to be a permanent establishment;
  • if a corporation uses substantial machinery or equipment in a particular place at any time in a taxation year, it is deemed to have a permanent establishment in that place;
  • the fact that a corporation has business dealings through a commission agent, broker or other independent agent or maintains an office solely for the purchase of merchandise shall not of itself be held to mean that the corporation has a permanent establishment;
  • the fact that a corporation has a subsidiary controlled corporation in a place or a subsidiary controlled corporation engaged in trade or business in a place shall not of itself be held to mean that the corporation is operating a permanent establishment in that place; and
  • if a corporation resident in Canada does not otherwise have a permanent establishment in Canada, the corporation is deemed to have a permanent establishment in the place where it has its registered office or in a place designated in its articles, charter or by-laws as its office or registered office.

 ‹ A. Provincial permanent establishments up

2. British Columbia ›


The definition of a “permanent establishment” under the Canada-United States Tax Convention (1980) is predicated upon any of: (i) a place; (ii) a person; or (iii) time allocation.

(a) Places

A permanent establishment as a place means a “fixed place of business”; that is, a physical location controlled by, and identifiable by prospective clients with, the non-resident taxpayer. Aside from owning or leasing space, the taxpayer may have a permanent establishment if it is permitted to use the office of a subsidiary or a client. Factors to be considered include but are not limited to whether the taxpayer has a key to the premises and access at any hour, whether it uses the premises of one client to service other clients and whether it hangs its own shingle in the lobby or hands out business cards with the address or phone number of those premises.

The Canada Revenue Agency has, in the past, determined that the premises of a subsidiary were a fixed place of business of its non-resident parent. The argument is that the subsidiary, although it is a separate legal entity, is merely the agent of the non-resident. The following may be helpful in avoiding this situation:

  • agreements between the non-resident taxpayer and any Canadian subsidiary should be clear that the subsidiary is an independent third party engaged in its own business, not the non-resident taxpayer’s agent acting as part of the non-resident taxpayer’s business; and
  • these agreements should make it clear that the Canadian subsidiary does not have the authority to receive orders, negotiate with clients or conclude contracts on behalf of the non-resident taxpayer, or assume any obligation on behalf of the non-resident taxpayer; they should also make clear that the Canadian subsidiary cannot hold itself out as an agent, a representative or a partner of the non-resident parent.

(b) Persons

The second concept is that of a permanent establishment as a person. A person can be a permanent establishment if it has and habitually exercises in Canada the authority to contract on behalf of the non-resident taxpayer. If circumstances permit, this situation can be avoided simply by denying any person in Canada the authority to execute contracts on the non-resident taxpayer’s behalf.

(c) Time allocation

A third concept applies in either of two scenarios:

  • services are provided in Canada by an individual who is present in Canada for an aggregate of 183 days or more in any 12-month period and more than 50% of the non-resident’s gross active business revenues derives from those services; or
  • services are provided in Canada by any number of persons, whether or not individuals, for an aggregate of 183 days or more in any 12-month period and those services are in respect of the same or a “connected” project—in this case, the customers may be either residents of Canada or merely have permanent establishments in Canada, provided in the latter case that the services are provided in respect of those permanent establishments.

The first scenario, which contemplates only a single individual, applies to any number of projects whereas the second scenario, which contemplates any number of individuals, applies only to a single or a connected project. The first scenario applies a revenue test, the second does not. Finally, non-working days are included under the first scenario but not under the second.

“Connected” Projects

Projects that are subject to different contracts may nevertheless be “connected” for the purposes of the time-allocation concept. According to the Technical Explanation of the 2007 Protocol, projects are connected if they constitute a “coherent whole”, both commercially and geographically. Relevant factors include:

  • whether the projects would, in the absence of tax planning considerations, have been concluded pursuant to a single contract;
  • whether the nature of the work involved under different projects is the same; and
  • whether the same individuals provide the services for the different projects.

 < 2. Canada’s tax treaty with China  up

II. When do I become subject to Canada’s provincial income tax? ›


The definition of a “permanent establishment” under the Canada-China Income Tax Agreement (1986) is predicated upon any of: (i) a place; (ii) a person; or (iii) time allocation.

(a) Places

A permanent establishment as a place means a “fixed place of business”; that is, a physical location controlled by, and identifiable by prospective clients with, the non-resident taxpayer. Aside from owning or leasing space, the taxpayer may have a permanent establishment if it is permitted to use the office of a subsidiary or a client. Factors to be considered include but are not limited to whether the taxpayer has a key to the premises and access at any hour, whether it uses the premises of one client to service other clients and whether it hangs its own shingle in the lobby or hands out business cards with the address or phone number of those premises.

The Canada Revenue Agency has, in the past, determined that the premises of a subsidiary were a fixed place of business of its non-resident parent. The argument is that the subsidiary, although it is a separate legal entity, is merely the agent of the non-resident. The following may be helpful in avoiding this situation:

  • agreements between the non-resident taxpayer and any Canadian subsidiary should be clear that the subsidiary is an independent third party engaged in its own business, not the non-resident taxpayer’s agent acting as part of the non-resident taxpayer’s business; and
  • these agreements should make it clear that the Canadian subsidiary does not have the authority to receive orders, negotiate with clients or conclude contracts on behalf of the non-resident taxpayer, or assume any obligation on behalf of the non-resident taxpayer; they should also make clear that the Canadian subsidiary cannot hold itself out as an agent, a representative or a partner of the non-resident parent.

(b) Persons

The second concept is that of a permanent establishment as a person. A person can be a permanent establishment if it has and habitually exercises in Canada the authority to contract on behalf of the non-resident taxpayer. If circumstances permit, this situation can be avoided simply by denying any person in Canada the authority to execute contracts on the non-resident taxpayer’s behalf.

(c) Time allocation

A third concept applies if services are provided in Canada by employees or other personnel for an aggregate of 183 days or more in any 12-month period and those services are in respect of the same or a  “connected” project.

“Connected” Projects

Projects that are subject to different contracts may nevertheless be “connected” for the purposes of the time-allocation concept. In general, projects are connected if they constitute a “coherent whole”, both commercially and geographically. Relevant factors include:

  • whether the projects would, in the absence of tax planning considerations, have been concluded pursuant to a single contract;
  • whether the nature of the work involved under different projects is the same; and
  • whether the same individuals provide the services for the different projects.

 ‹ 1. Canada’s typical income tax treaty  up

III. Canada’s tax treaty with the United States? ›


The definition of a “permanent establishment” under Canada’s tax treaties is generally predicated upon any of: (i) a place; (ii) a person; or, (iii) in the case of Canada’s treaties with China and the U.S., the amount of time spent in Canada.

(a) Places

A permanent establishment as a place means a “fixed place of business”; that is, a physical location controlled by, and identifiable by prospective clients with, the non-resident taxpayer. Aside from owning or leasing space, the taxpayer may have a permanent establishment if it is permitted to use the office of a subsidiary or a client. Factors to be considered include but are not limited to whether the taxpayer has a key to the premises and access at any hour, whether it uses the premises of one client to service other clients and whether it hangs its own shingle in the lobby or hands out business cards with the address or phone number of those premises.

The Canada Revenue Agency has, in the past, determined that the premises of a subsidiary were a fixed place of business of its non-resident parent. The argument is that the subsidiary, although it is a separate legal entity, is merely the agent of the non-resident. The following may be helpful in avoiding this situation:

  • agreements between the non-resident taxpayer and any Canadian subsidiary should be clear that the subsidiary is an independent third party engaged in its own business, not the non-resident taxpayer’s agent acting as part of the non-resident taxpayer’s business; and
  • these agreements should make it clear that the Canadian subsidiary does not have the authority to receive orders, negotiate with clients or conclude contracts on behalf of the non-resident taxpayer, or assume any obligation on behalf of the non-resident taxpayer; they should also make clear that the Canadian subsidiary cannot hold itself out as an agent, a representative or a partner of the non-resident parent.

(b) Persons

The second concept is that of a permanent establishment as a person. A person can be a permanent establishment if it has and habitually exercises in Canada the authority to contract on behalf of the non-resident taxpayer. If circumstances permit, this situation can be avoided simply by denying any person in Canada the authority to execute contracts on the non-resident taxpayer’s behalf.

(c) Modifying Rules

The rules relating to places and persons are typically modified by supplementary rules. There are, for example, a series of exclusions pertaining to the purchase or storage of merchandise and activities of a preparatory or auxiliary character. Canada’s treaties generally also exclude from the definition of “permanent establishment” building sites, assembly and installation projects provided that such site, project or activity does not last more than twelve months—six months in the case of China or Hong Kong.


 ‹ B. Treaty relief  up

2. Canada’s tax treaty with China ›


Canada’s tax treaties exempt non-residents from Canadian income tax on Canadian-source business income if that income is not attributable to a permanent establishment maintained by the non-resident in Canada. While the definition of “permanent establishment” differs from treaty to treaty, the basic concepts remain consistent.


1. Canada’s typical income tax treaty

2. Canada’s tax treaty with China 

3. Canada’s tax treaty with the United States


 ‹ A. Carrying on business in Canada  up

1. Canada’s typical income tax treaty ›


Non-residents are subject to Canadian income tax on income earned from carrying on business in Canada. A distinction is made between carrying on business “with” Canada and carrying on business “in” Canada. Only the latter attracts Canadian income tax and filing obligations.

Whether a non-resident carries on business “with” or “in” Canada depends on the level of activity performed in Canada by the non-resident. If, for example, this activity is limited to the delivery of goods to a customer in Canada, the non-resident will generally be considered to carry on business “with” Canada and so will not be taxable or subject to filing obligations. If, however, sales orders are procured through an agent in Canada then the non-resident may well be considered to carry on business “in” Canada and so be taxed accordingly.

Any further guidance as to where the threshold lies must be drawn by analogy from the federal sales tax context, discussed in the section entitled, When do I become subject to Canada’s federal sales tax (GST)?

Potential relief under Canada’s tax treaties is discussed under Treaty Relief.


 ‹ I. When do I become subject to Canada’s federal income tax?  up

B. Treaty relief ›



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