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Municipal, Land Use and Development – Art Linton

The Supreme Court of Canada recently clarified the law of injurious affection where no land is taken in its decision in Antrim Truck Centre Ltd. v. Ontario (Transportation), 2013 SCC 13. Unfortunately, the compound test set out by the Court has left many public sector professionals feeling uncomfortable about their ability to efficiently detect and assess potential claims without extensive legal assistance. Lawyers representing property owners in such cases often apply a simplified first pass test looking for construction that permanentlysubstantially, and disproportionately affects property values or causes personal or business damage. There is no reason that expropriating authorities can’t apply the same test to identify and mitigate the risk of unanticipated litigation expense.

The Expropriations Act (Ontario) requires an expropriating authority to compensate a landowner for reduction in market value as well as personal and business damages even where none of the owner’s land is taken. Before having an entitlement to compensation, claimants are required to prove any damage was caused by action taken under statutory authority, the damage would have given rise to liability in common law if not for the statutory authority, and the damage was caused by the construction, not the subsequent use of a public project. In most cases, it will be known whether the work was performed under statutory authority, and it will be reasonably clear whether a potential claim will arise from construction and not the use of a public work.

The legal test is complicated in practice because the Court requires that damage must be substantial and unreasonable. These terms are intentionally broad to permit consideration of the particular circumstances of each public project. The determination of what is substantial and unreasonable is subject to the moving target of Ontario Municipal Board and court decisions on various fact sets that come before them over time. Further, the legal test considers whether any damage to a property is, or is not, the kind of damage a property owner should be prepared to accept without compensation. An experienced expropriation lawyer is the best choice to conduct this legal analysis.

Public officials should diligently apply the simplified first pass test early in each project to identify potential claims and refer them for legal analysis. An experienced expropriation lawyer can then apply the full legal test set out by the Supreme Court to advise whether a potential claim is likely to materially affect the cost of a project. If serious potential claims are identified before construction begins, more time and options are available to mitigate liability and manage cost.

One illustration is a single business located on a short dead end side street off a main traffic artery. Vehicles travelling in either direction on the main road are able to reach the business using a left or right hand turn. Access to that business would clearly be affected by any permanent obstacle, such as a concrete safety barrier or a raised LRT service in the median of the main road. All customers who previously accessed that business by making a left hand turn off the main road would be prevented from doing so. An application of the simplified test would show likely permanent, substantial, and disproportionate affect from the construction, visited upon this single business. Early recognition of this problem might allow solutions like a left hand turn lane with permitted U-turns at the next intersection or opening a new access at the other end of the short dead end street.

The simplified first pass test is no replacement for a thorough strategic review of every project prior to construction. However, early detection of potential claims provides time to offer remedies that may not be available once a plan is approved and to make other reasonable efforts to reduce the impact of the project on affected property owners.

Art Linton is a lawyer with Sorbara, Schumacher, McCann LLP, one of the largest and most respected regional law firms in Ontario. 

* * This article is intended only to inform and educate. It is not legal advice.  Be sure to contact a lawyer to obtain legal advice on any specific matter.

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A recent decision of the Ontario Superior Court of Justice has resulted in a woman injured in a slip and fall on property owned by the City of Toronto to pay more than $9,000 in legal fees to the City when her case was dismissed by the Court because she failed to notify the City within 10 days following her injury of her intention to seek compensation.

The City of Toronto Act (like the Municipal Act) requires individuals who have injured themselves on City property to notify the City within 10 days of the date of the accident.

The Plaintiff in this case injured herself on August 19, 2011 when she tripped on a City sidewalk as a result of a 2.5 cm gap between the concrete and the interlocking brick. Unfortunately, she fractured her left wrist.

It was not until some 4 months later that the plaintiff caused a notice letter to be delivered to the City. Although there is an exception to 10 day notice requirement where there is a reasonable explanation for the delay, the plaintiff in this case was unable to provide any reason to the Court why such notice was not delivered.  Additionally, there must be evidence that the City has not been prejudiced by the delay in the receipt of the statutory notice.

Importantly, ignorance of the requirement or the statutory limitations is not an excuse for non-compliance with the Act.

It was clear that, although the Plaintiff had suffered an injury, the injury did not hinder her actions or ability to give timely notice.

The Court was quick to empathize with the Plaintiff and explicitly commented on the unfairness of the 10 day notice requirement, however, ultimately found that it was bound to give effect to the legislation and rule in favour of the City’s motion to dismiss the action.

The take home message: contact SorbaraLaw immediately following an accident causing injury so that we can take the appropriate and necessary steps to preserve your rights.

Article written by: Cynthia Davis
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* * This article is intended only to inform or educate. It is not legal advice.  Be sure to contact a lawyer to obtain legal advice on any specific matter.

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When the Ontario Human Rights Code (the “Code”) was amended in June 2008 to include section 46.1 which allows a court to order remedies for an infringement of a right under the Code, many observers in the employment bar expected to see claims for damages for breach of the Code to be joined with wrongful dismissal claims. It took five years from when that amendment was enacted before an Ontario Superior Court judge exercised this new judicial power in the context of a wrongful dismissal action.

In Wilson v. Solis Mexican Foods Inc., Justice A. Duncan Grace found that the employer discriminated against the employee in the termination of her employment and awarded $20,000 in general damages for the infringement of her rights under the Code in accordance with section 46.1. This decision is significant as it is the first time that a superior court judge has awarded damages for an infringement of the Code pursuant to section 46.1 and it provides a framework for the analysis and assessment of damages in such claims.

The Code was amended on June 30, 2008 to include, among other things, section 46.1 which provides as follows:

46.1  (1)  If, in a civil proceeding in a court, the court finds that a party to the proceeding has infringed a right under Part I of another party to the proceeding, the court may make either of the following orders, or both:

1. An order directing the party who infringed the right to pay monetary compensation to the party whose right was infringed for loss arising out of the infringement, including compensation for injury to dignity, feelings and self-respect.

2. An order directing the party who infringed the right to make restitution to the party whose right was infringed, other than through monetary compensation, for loss arising out of the infringement, including restitution for injury to dignity, feelings and self-respect.

46.1 (2)  Subsection (1) does not permit a person to commence an action based solely on an infringement of a right under Part I.

Prior to this amendment, the court did not have authority to award damages for breach of the Code. Therefore, if an employee wanted to pursue a claim for wrongful dismissal and also felt that she had been discriminated against in violation of the Code, she would have had to pursue a lawsuit for wrongful dismissal before the courts and a complaint or application under the Code.

Section 46.1 was designed to create efficiency and avoid multiplicity of proceedings. While it does not give a former employee the right to commence a civil action based solely on the alleged breach of the Code, section 46.1 does permit her to include a claim for discrimination under the Code in a claim for wrongful dismissal. If the court finds that there was an infringement of a right under the Code, it now has broad powers to award monetary compensation or order remedies other than monetary compensation, in order to remedy the violation.

In Wilson, the court was dealing with the termination of a relatively short-term employee that occurred in the middle of a medical leave of absence.

Wilson was employed by Solis for approximately 16 ½ months as a Business Analyst. Her employment was terminated without notice by way of a letter dated May 19, 2011. No cause for termination was alleged. The reason that Solis stated for the termination was that it was the result of organizational changes (specifically the sale of its New Orleans Pizza division) that made many of her job functions redundant. Wilson received two weeks’ pay in lieu of notice at the time of termination. She was 54 years old at the time of termination. She was successful in finding new employment within five months.

Wilson commenced an action for wrongful dismissal. She also alleged that her employment was terminated, at least in part, because of an ongoing back ailment and made a claim for damages pursuant to section 46.1 of the Code for an alleged violation of her rights under the Code.

The basis for the human rights claim was that Wilson had raised the issue of her back ailment with Solis in December 2010, had taken a leave of absence as a result of her back in March 2011 and was still on that leave of absence when her employment was terminated. During the leave, Solis had requested numerous medical notes from Wilson. When Wilson presented a note that indicated that she was capable of returning to work on a graduated basis, Solis indicated that this was not acceptable and required that Wilson be capable of returning to full-time hours and full duties before she could make the transition back to work. Solis required Wilson’s doctor to complete a Functional Abilities Form. When the doctor did so, Solis raised concern with it and requested a further Functional Abilities Form be completed. The last communication from Wilson’s doctor was delivered three weeks before her employment was terminated and indicated that Wilson was required to be off work for another six weeks. There was also evidence that Solis’ management had been discussing Wilson’s health condition dating back to December 2010 after she disclosed the same.

With respect to the wrongful dismissal claim, Solis conceded that it had not provided reasonable notice of termination or pay in lieu thereof. Solis maintained that a three month notice period was appropriate. Wilson sought damages based on a six month notice period. Considering all of the evidence, Justice Grace found that the reasonable notice period was three months and awarded damages accordingly.

With respect to the human rights claim, Solis maintained Wilson’s termination was unrelated to her back issues but was the result of the sale of the New Orleans Pizza division which eliminated a number of Wilson’s duties – Wilson in fact conceded that her work load would have been cut in half after the sale.

Justice Grace began his analysis by confirming that Wilson’s back ailment, while temporary, nevertheless constituted a “disability” under the Code. He then went on to consider the jurisprudence before the Human Rights Tribunal of Ontario (the “HRTO”) regarding discrimination in the context of termination of employment and accepted the proposition that “a decision to terminate an employee based in whole or in part on the fact that employee has a disability is discriminatory and contrary to the Code”.

Justice Grace found that Wilson’s ongoing back issue was a significant factor in the decision to terminate. In so doing, he relied on evidence that showed that Wilson had been assessed as performing at a satisfactory level weeks before advising Solis of her back issues in December 2010 and that, after her disclosure of this disability, Solis questioned for the first time whether Wilson was suited for her role. Justice Grace also found that Solis’ requests for documentation and its insistence that Wilson be ready for full-time hours and duties as a condition of her return to be evidence of it being disingenuous and failing to offer or even consider accommodation as required under the Code. He was also critical of Solis’ failure to notify Wilson at any time prior to the termination letter of the pending sale of the New Orleans Pizza division or the potential impact of the sale on her job.

Justice Grace concluded without hesitation that the decision to terminate Wilson’s employment started in December 2010 when she raised issues about her back. Accordingly, he found that her right to equal treatment and to be free from discrimination under section 5(1) of the Code was violated by Solis.

In considering the appropriate award of damages, Justice Grace noted that the only evidence that he had with respect to Wilson’s loss relating to “feelings, dignity and self-respect” was limited to two statements she made in her affidavit about being shocked, dismayed and angered by one of Solis’ letters that pre-dated the termination. Justice Grace nevertheless relied on previous HRTO jurisprudence in concluding that compensation for breach of the Code was not limited to claims for a loss relating to “feelings, dignity and self-respect”. In this regard, he relied on ADGA Group Consultants Inc. v. Lane in which the Divisional Court upheld the HRTO’s award of $35,000 in general damages “to compensate for the intrinsic value of the infringement of rights under the Code” and a further $10,000 for mental anguish. Justice Grace also relied on previous case law for the proposition that employers are under a duty to act fairly and are required to be candid, reasonable, honest and forthright when dismissing employees. He found that Solis did not meet that standard when it claimed in one breath that Wilson was “valued” and then created obstacles for her return and ultimately terminated employment when the time was ripe.

Having considered those principles and all of the evidence, Justice Grace determined that the appropriate award of general damages under section 46.1 was $20,000.

This damage award was significant considering that it represented approximately 30% of the Wilson’s annual salary and it was greater than the amount that was awarded for wrongful dismissal damages.

Also, Justice Grace made this award while recognizing that there was limited evidence as to the effect that the violation had on Wilson. Presumably, if Solis’ conduct had been more serious and had Wilson presented medical or other evidence to demonstrate a more significant impact on her well-being, Justice Grace would have been inclined to award considerably more in damages. Indeed, given the minimal evidence of “loss” or “injury” that was presented in this case, this ruling can be expected to be relied upon by plaintiff counsel as a starting point for damages under section 46.1.

It is clear from the ruling in Wilson that the court will adopt the same principles that HRTO has established in assessing claims of discrimination, in particular the well-established principle that the disability (or other protected ground) need only be a factor (and not the only or a primary factor) in the decision to terminate, in order to constitute a violation of the Code. It is also clear that damage awards for breach of the Code are on the rise.

Accordingly, employers are well advised to take these issues seriously and to ensure that they are complying with their obligations under the Code. Those that do not may be exposed to significant damage awards and other remedies in court.

Article written by: Justin Heimpel
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* * This article is intended only to inform or educate. It is not legal advice.  Be sure to contact a lawyer to obtain legal advice on any specific matter.

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Does your business send electronic messages to clients or prospective clients regarding sales, new products, services or general industry updates?  If yes, you should be aware of a new federal Act that comes into force July 1, 2014. Its aim is to protect consumers from unwanted ‘spam’ emails – like the seemingly never-ending stream of Viagra and ‘can’t miss’ stock pick messages.

Canada’s Anti-Spam Legislation (“CASL”) could have a major impact on businesses that send legitimate electronic messages to customers. It is important that companies take some time to review email sending practices and ensure they adhere to the requirements under CASL. Here are some key points to be aware of:

  • The legislation applies to businesses sending ‘commercial electronic messages’ (“CEMs”). A CEM encompasses any form of electronic communication that encourages participation in a commercial activity, regardless of whether there is an expectation of profit. The scope of electronic communication includes e-mails, text messaging, and social media.
  • CEMs must contain an option to unsubscribe, as well as contact information identifying the sender.
  • Recipients (customers) must give their consent to receiving CEMs. Consent to receiving CEMs can be implied or express. One example of implied consent is an existing business or non-business relationship within a prior two-year period. If there is no implied consent, then express consent is required. Because a request (sent electronically) for express consent will be considered a CEM once the legislation takes effect, it is wise to send such requests prior to July 1, 2014.


There are many exceptions to the above requirements. A CEM is not subject to CASL, for instance, if the recipient initiates an inquiry related to a commercial activity, or if the CEM is sent between two employees of an organization. There are also several circumstances where the consent requirement is waived – such as when the message concerns warranty or product recall information on a product or service the recipient has purchased, or when the message is facilitating a commercial transaction the recipient previously agreed to enter into.

There are other various nuances and exemptions under CASL, but the underlying principle is that recipients must provide consent to businesses who wish to send such messages.


CASL will affect the way in which many business organizations collect and maintain consent when sending marketing e-mails or maintaining e-mail lists. Start-up businesses may be disproportionately affected in their ability to reach new customers. Marketing practices that were valid before CASL may be prohibited after July 1, 2014. For example, if a customer has not purchased anything from your company within two years of the last marketing e-mail you have sent him or her, and hasn’t inquired about your products in the last six months, then your business may no longer have that customer’s implied consent under CASL because it is no longer considered an ‘existing business relationship’.

One particular challenge will be relying on implied consent. If you have no further contact with a client from whom you obtained implied consent prior to July 1, 2014, that implied consent will expire after a three year transition period – namely July 1, 2017. This may be challenging, as express consent will have to be obtained, but sending CEMs to recipients who have not provided consent will not be permitted under CASL.

Practical tips to consider

  • Update your customer records. These records should include when consent was obtained and if it was implied or express. Determine how to collect express consent, and whether you can rely on implied consent or on one of the CASL exemptions. There are email marketing software tools that can aid in tracking customer consent as well as unsubscribe requests.
  • Provide incentives for consent. This can be done by informing recipients of benefits for opting in to the subscription, such as special promotions or exclusive news. This is one possible way to deter potential consumers from clicking the unsubscribe option that senders will be required by CASL to provide.
  • Educate all employees.  As one CEM sent to someone who has not provided consent can be considered a CASL violation, it is essential that all employees understand the basic requirements of, and their obligations under, CASL.


An individual may be fined up to $1 million and corporations may be fined up to $10 million for non-compliance with CASL. Consumers and businesses will also have the right to bring a private right of action starting on July 1, 2017, with a penalty of $200 per infraction. Needless to say, the benefits of adjusting your business’ marketing practices to CASL requirements outweigh the costs of remaining idle.

Want to Learn More?

If you have any questions about this article or would like to discuss your company’s CASL compliance strategy, please contact Cameron Mitchell at

Article Written by:  Cameron Mitchell
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* * This article is intended only to inform or educate. It is not legal advice.  Be sure to contact a lawyer to obtain legal advice on any specific matter.

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A recent decision of the Ontario Court of Appeal, Kawartha Lakes (City) v. Ontario (Environment), confirmed that property owners are responsible for cleaning up their property and preventing further contamination in the event of a spill, even though such property owners may be completely innocent.  This case demonstrates that the Ontario Ministry of the Environment (MOE) has the power (and is willing to use it), to make such orders as it deems necessary to ensure that prevention and cleanup is undertaken as quickly as possible.

The potential sources of contamination are numerous and may include not only noxious chemicals, but any substance that may have an adverse effect on the environment.  A recent Supreme Court of Canada decision found that fly rock from a road construction site was properly considered contamination.

In the City of Kawartha Lakes case, the contaminant was spilled heating oil.  The owners of property adjacent to storm sewers and a road allowance owned by the City of Kawartha Lakes (the “City”) had heating oil delivered to their property.  Several hundred litres of oil leaked into the basement of their home and subsequently spread onto nearby property owned by the City.  A cleanup order was issued to the homeowners; however, after they had exhausted their financial resources, including insurance, the contamination on the City’s property had not been dealt with and there was concern that the heating oil would spread further.  The MOE issued an order requiring the City to clean up its property and prevent further discharge of the contaminant.  In appealing the order, the City attempted to present evidence proving they were not at fault for the spill.  The Ontario Court of Appeal upheld the lower court decision, refusing to hear such evidence on the grounds that who was at fault was not relevant to the requirement that the City clean up its land.  The Court of Appeal, in fact, acknowledged that the City was an innocent party.  Nevertheless, it stated that because the primary purpose of the Environmental Protection Act (“EPA”) is to protect and conserve the natural environment, who is at fault is not relevant in the pursuit of that objective.

It is now clear that the MOE wields broad powers to order both public and private property owners to clean up and remediate property that they own or occupy, and to prevent further contamination regardless of who is at fault.  The MOE will issue orders against all affected parties. Costs for MOE-ordered clean up and prevention can quickly run into hundreds of thousands or millions of dollars and can devastate innocent property owners and businesses faced with such orders.  Fortunately, there may be some ways for innocent parties to mitigate their costs.

In many cases, the MOE will order the owner and/or the controller of the pollutant to undertake or pay for the cleanup of all properties affected by the spill.  There are also possible claims pursuant to the EPA and at common law, which may be available to innocent property owners to seek compensation from the parties to blame for the spill.   Further, in cases where the owner and/or controller of the pollutant is not known or is insolvent, the EPA provides for innocent property owners to seek limited reimbursement from the Ontario Government.  The Ontario Government may then seek recovery of those costs from the owner or controller of the pollutant.

The final determination of who is to blame for the contamination and therefore responsible for the cost of the cleanup must be resolved among the parties.  Often a civil court action is required to distribute responsibility among the parties.

Property owners and businesses should regularly investigate whether environmentally risky activities are conducted on adjacent property.  If potentially contaminating materials are present on a property, the owners should carefully guard against those materials escaping onto their own property, or onto neighbouring property.  Finally, given the willingness of the MOE to order remediation without considering fault, prudent owners or occupiers of property should regularly review their insurance coverage to determine whether they would be able to survive an MOE clean up and prevention order in the event of a serious contamination event. 

Article written by: Lynn Dramnitzki
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* * This article is intended only to inform or educate. It is not legal advice.  Be sure to contact a lawyer to obtain legal advice on any specific matter.

Tax Law – Patrick Westaway


View the chart here:

Canadian and Ontario Film and Television Tax Credits (Chart)


Patrick is a corporate/commercial and tax lawyer of more than 16 years’ experience. He regularly advises in such technology industries as animated feature film production, online gaming and telecommunications with an emphasis upon cross-border enterprise and investment structuring.

Tax Law – Patrick Westaway

New business remains subject to the old taxes. Believing otherwise is wishful thinking. The latest tax topic in the world of technology is the Bitcoin. For those still using old-fashioned e-transfers and PayPal, the Bitcoin is the new currency. Unaffiliated with any country or bank, the Bitcoin works because the parties agree that it should. Bitcoins are accepted by an increasing number of online (and offline) vendors and service suppliers, and can even be converted into “real” money—provided someone with real money agrees. It’s like a barter system but without the bartering.

You might object that the Bitcoin has nothing to do with bartering since it is fundamentally liquid. It is fungible. A loonie is worth a loonie and a Bitcoin is worth a Bitcoin.  There is no squabbling over how many of my chickens your cow is worth, or which service has the greater value. Fundamentally then, Bitcoins are money, but without the underwriting of a bank or national treasury—which, given the experience of recent years, might not be such a bad thing. At least, that is what you might think. But for practical purposes, you would be wrong—at least where taxes are concerned.

The CRA posted its position on the Bitcoin late last year and the news was grim for those who thought that only national currencies are taxed and that the Bitcoin heralded a return to a pre-war income tax free nirvana-that-never-was. The Bitcoin—or more broadly, “digital currency”—is, we are told, “virtual money”. It can be bought and sold “like a commodity” and the receipt of this virtual-money-that-is-sometimes-a-commodity is taxable in the same way as any other income. This is not to say that every Bitcoin transaction is taxable, only that Bitcoins do not make taxable transactions into non-taxable ones.

This is bad news for the wishful thinkers but validation for the champions of stateless money. The rub for the latter bunch, however, is that the CRA did not bestow the status of “money” on the Bitcoin. That would have been unhelpful and a little meaningless since one cannot go onto the Bank of Canada website to check the Bitcoin’s exchange rate. Instead, the CRA simply said that the Bitcoin is subject to the same rules as barter transactions, meaning that Bitcoins are to be valued according to the goods or services for which they are exchanged. Sadly, then, despite its fungibility, the Bitcoin leaves us still asking after the underlying value at tax filing time.

It must also be recognized that when Bitcoins are bought and sold like a commodity—arbitraged like any other currency—their disposition must give rise to income or capital gains according to whether they are traded on income, or held on capital, account.

The takeaway is this. First, tax has always applied to non-cash receipts, such as are realized upon share exchanges, stock dividends, dividends in kind, shareholder benefits, employee benefits and, yes, even barter transactions—unless carefully structured to access a specific exemption or deferral. Whether you are paid in dollars, Bitcoins or ham sandwiches, there is a value to what you receive and you are taxed on that value. Were it otherwise, tax planning would be simple and tax planners could all retire—comfortably financed by the tax-free accruing Bitcoin. Second, although the Bitcoin and its digital ilk may have the hallmarks of real money, the distinction is academic since, without a State-sanctioned exchange rate, the Bitcoin does not bestow a value upon the goods or services but instead must derive its value from those goods or services, which must then still be valued in old fashioned dollars. And, finally, when investing in Bitcoins, be prepared to recognize income or gains when you cash in.

There is also a more technological concern, which should speak to every early adopter and everyone who has ever lost data. What happens when there is a bug in your Bitcoin, when problems with the software cause your digital bank to suspend operations until further notice? What is the value then? Just ask the clients of Mt. Gox, the Tokyo Based Bitcoin exchange that did exactly that in the days before this article was written.

* * This article is intended only to inform and educate. It is not legal advice.  Be sure to contact a lawyer to obtain legal advice on any specific matter.


Patrick Westaway is Tax Counsel to Sorbara, Schumacher, McCann LLP, a full service law firm based in Waterloo, Ontario. Patrick advises on a broad range of Canadian taxation issues such as corporate tax planning, structuring inbound investments, corporate reorganizations, cross-border financings, tax opinions for public disclosure documents, tax assessments, personal tax matters, wealth preservation, and on federal and provincial sales tax matters (HST/GST/PST). Patrick also practices corporate and commercial law with an emphasis on the implementation of matters related to his tax planning practice.

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Tax Law – Patrick Westaway

A non-resident who sells software into Canada may be required to levy Canada’s Goods and Services Tax (“GST”—Canada’s VAT) even though the non-resident does not carry on business in Canada. This depends on whether the software is “off the shelf” or custom, whether it is licensed or sold and whether the non-resident is already a GST registrant. To skip this analysis and register for GST out of an abundance of caution can therefore subject a sale to GST when GST would not otherwise apply.

Off-the-Shelf Software

Off-the-shelf software is pre-packaged, commercially available software that one may pull “off the shelf” in a shop. Such software typically comes with a standardized (“shrink wrap”) licence agreement which binds the customer by reason of the customer having opened the box or loaded the software. This kind of software is considered to be tangible personal property and, as such, is always subject to GST on importation. The key, then, for the supplier is to ensure that delivery is made outside Canada, i.e., Ex Worksbefore importation.

Off-the-Shelf software that is sold online is considered to be intangible property. Unlike tangible personal property, it is not taxed upon importation. Instead, the supply is deemed to have been made in Canada. The supplier is therefore required to levy the GST without the Ex Works alternative available to bricks and mortar suppliers.

Custom Software

Customized software is altogether different. If a client commissions the supplier to (a) write new software which the client will own outright or (b) modify the client’s existing software, the Canada Revenue Agency focuses on the fact that the client owns the software and so considers the supplier to charge for the programming service rather than the program. Since services are only subject to GST if performed in Canada, programming services performed abroad are exempt—unless the supplier is a GST registrant. It is therefore important to understand the GST implications before rushing to become a registrant.

In practice, suppliers of custom software will often send employees to Canada to install the software and provide training. If, in doing so, the supplier is considered to carry on business in Canada then the supplier must become a GST registrant and levy GST.  Thus, not only will the installation and training services become taxable, but so also will the software, for the reasons just described. However, a good Canadian tax advisor can enable the supplier to perform installation and training services in Canada without being considered to carry on business in Canada.

It is therefore essential to consult a Canadian tax advisor prior to entering into any agreement so that the non-resident supplier can avoid those GST registration, withholding and remittance requirements that are so commonly and unnecessarily incurred by the unwary.

* * This article is intended only to inform or educate. It is not legal advice.  Be sure to contact a lawyer to obtain legal advice on any specific matter.


Patrick Westaway is Tax Counsel to Sorbara, Schumacher, McCann LLP, a full service law firm based in Waterloo, Ontario. Patrick advises on a broad range of Canadian taxation issues such as corporate tax planning, structuring inbound investments, corporate reorganizations, cross-border financings, tax opinions for public disclosure documents, tax assessments, personal tax matters, wealth preservation, and on federal and provincial sales tax matters (HST/GST/PST). Patrick also practices corporate and commercial law with an emphasis on the implementation of matters related to his tax planning practice.

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Tax Law – Patrick Westaway

It is critical for non-residents to obtain proper Canadian legal advice respecting their long-term tax position before entering the Canadian market. The tax consequences of the various available structures vary significantly and opportunities for tax savings can be considerable.

The tax issues arising upon entering the Canadian market are best understood by recognizing that there are only three basic vehicles. A non-resident corporation may carry on business in Canada directly, through a Canadian corporation or through a partnership involving either or both of the foregoing. Once the consequences of each alternative are understood and compared, more complex, contextual, structures may be tailored from these basic building blocks.

Admittedly, this is a simplistic analysis since only the basic ‘building blocks’ are considered. Furthermore, this analysis is limited to the Canadian side of the equation. In respect of the first limitation, the essential point is that the tax issues remain the same for the most complex as for the simplest structures. The simpler the structure, the more readily understood are the tax issues. As to the second limitation, it is, of course, necessary to always consider the tax issues in the applicable foreign jurisdiction.

I. Permanent Establishments

Focusing, then, upon the Canadian side of the equation, the first scenario is one in which the non-resident corporation would carry on business in Canada directly. From a domestic perspective, subsection 2(3) of the Income Tax Act (Canada) (the “Tax Act”) would subject the non-resident to Canadian income tax on all Canadian-source business income. From a cross-border perspective, however, there may be an opportunity to avoid Canadian taxation by avoiding a Canadian permanent establishment. The first point to consider, then, is the threshold at which the Canada Revenue Agency (the “CRA”) would determine a permanent establishment to arise for the purposes of Canada’s typical tax treaty.

It should be noted at the outset that treaty exemptions for non-residents carrying on business in Canada without a permanent establishment usually apply only to non-residents that are corporations. A similar exemption involving the identical concept of “fixed base” applies to individuals. That the concepts of “permanent establishment” and “fixed base” are identical has been recognized by the recent deletion of the latter concept from the Canada-U.S. Tax Convention (1980) (the “Canada-U.S. Treaty”) and the expansion of the former to benefit individuals. All comments on permanent establishments therefore apply equally to fixed bases.

(a) Permanent Establishment

The definition of a “permanent establishment” is set out with some particularity in the tax treaties. In essence, these definitions provide that a permanent establishment is predicated upon any of: (i) a place; (ii) a person; or, in the case of the U.S. treaty, (iii) time allocation.

(i) Places

A permanent establishment as a place requires a “fixed place of business”; that is, a physical location controlled by, and identifiable by prospective clients with, the non-resident. Aside from the obvious examples of owning or leasing space, a non-resident may simply be permitted to use the office of a Canadian affiliate or client. In such circumstances, we would need to consider whether the non-resident has a key to those premises and access at any hour, whether it uses those premises to service other clients and whether it hangs its own shingle in the lobby or hands out business cards with that address or phone number. Relevant factors are as varied as the circumstances.

(ii) 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. If circumstances permit, this situation can be avoided simply by denying any person in Canada the authority to execute contracts on the non-resident’s behalf.

If, for example, a non-resident is to have only a sales force in Canada, a permanent establishment could be avoided by requiring head-office approval for all sales contracts. In this scenario, it should be noted that the typical treaty definition of “permanent establishment” specifically excludes the use of facilities for the purpose of storage, display or delivery of merchandise. A Canadian sales and distribution network could, therefore, be organized to avoid Canadian income tax entirely—subject to the new 183-day rule.

(iii) Time Allocation: The New 183-Day Rule

A third branch of the definition of permanent establishment is exclusive to Canada’s tax treaty with the U.S., applicable as of January 1, 2010. This branch applies in either of two sets of circumstances:

(A) 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

(B) 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 persons, applies only to a single or a connected project. Further, whereas the first scenario applies a revenue test, the second does not. When considering the use of local representatives, it should also be noted that the typical treaty specifically excludes from the definition of “permanent establishment” any agent of an independent status acting in the ordinary course of its business. Thus, distributors and other independent contractors would not usually constitute a permanent establishment.

(b) Pros and Cons

Assuming that the non-resident chooses to carry on business in Canada directly through a permanent establishment, what are the consequences? First, that non-resident would be subject to Canadian income tax on all net Canadian-source income attributable to the permanent establishment. Although a foreign tax credit would presumably be claimed in the non-resident’s home jurisdiction, the non-resident would remain liable to pay the higher of the two tax rates and would be required to file a Canadian income tax return. Second, liabilities incurred in Canada would be incurred by the non-resident—there would be no limitation of liability otherwise afforded by a subsidiary corporation. Third, customers of the permanent establishment would be required to withhold and remit income tax on all payments that they make to the permanent establishment, although non-resident corporations typically obtain waivers for this withholding and remittance requirement.

On the other hand, the principal benefit of carrying on business through a permanent establishment is that any losses incurred in Canada would generally be deductible by the non-resident in its home jurisdiction against its non-Canadian-source income. A permanent establishment may also be preferable if the extent or frequency of business activity in Canada does not warrant the incorporation of a separate company.

(c) Branch Tax

The last issue when considering whether to carry on business in Canada directly is “branch tax”. Just as Part XIII of the Tax Act imposes a non-resident tax of 25% on dividends, so Part XIV imposes a branch tax of 25% on the after-tax profits of the branch that are not reinvested in the Canadian business. And, just as the tax on dividends is subject to reduction by treaty, so also is branch tax. This reflects the policy behind branch tax, which is to render tax neutral the choice between a branch and a subsidiary. Differences arise, however, in that the treaty-reduced rate applicable to dividends under most of Canada’s tax treaties is variously 5% or 10%, as discussed in Part II(b), below, whereas the treaty-reduced rate applicable to branch tax is 5%.

Further differences between branch tax and non-resident tax are as follows. First, there is a timing difference since branch tax is payable annually whereas the non-resident tax applicable to dividends is payable when the dividend is paid or credited. Second, Canada’s tax treaties typically provide a one-time branch tax exemption on the first $500,000 of net income. No such exemption applies to dividends, although an analogous result may be obtained for dividends through the use of an acquisition company, discussed in Part II(c), below.

II. Subsidiaries

Thus far, we have reviewed the possibility of avoiding Canadian income tax by avoiding a Canadian permanent establishment and the tax consequences of carrying on a business in Canada through a permanent establishment. The next likely vehicle through which to carry on business in Canada is a Canadian subsidiary.

(a) Pros and Cons

The pros and cons of a subsidiary are the converse to those of a permanent establishment. As a separate legal entity, any losses generated by a subsidiary cannot be deducted by the parent. On the other hand, the subsidiary’s liabilities are its own and, as a Canadian corporation, its customers are not required to withhold and remit taxes. It should also be noted that a subsidiary’s tax filing obligations are also its own, which is significant if the non-resident does not wish to disclose its financial information to the CRA.

Prior to recent amendments to the Canada-U.S. Treaty, unlimited liability companies (ULCs) were often incorporated under the laws of Nova Scotia, Alberta or British Columbia to provide U.S.-resident investors with the benefits of both a permanent establishment and a subsidiary. However, as a result of those amendments, all dividends, royalties and similar payments made to the U.S.-resident parent are now subject to non-resident tax, discussed below in Part II(b), at the full rate of 25% without the benefit of a treaty reduction or exemption. Nevertheless, ULCs continue to offer benefits for U.S. tax purposes, which must be weighed against the loss of treaty benefits. The continued benefits of these corporations is discussed in a separate article.

Notwithstanding that a subsidiary is an independent legal entity, care must be taken to ensure that the subsidiary cannot be construed to be a mere agent of its non-resident parent. In such a case, the CRA might consider the subsidiary’s premises to constitute a “fixed place of business” through which the non-resident parent carries on business in Canada, i.e., the subsidiary’s premises could be construed to be a permanent establishment. This result may be avoided when drafting inter-corporate services agreements by making it clear that the subsidiary is engaged in its own business, that the relationship between the non-resident and its Canadian subsidiary is one of customer and independent contractor.

(b) Non-Resident Tax and Income Tax

(i) Non-Resident Tax

If we divide the non-resident and the Canadian operation into separate legal entities, we must then consider taxes on all payments flowing between them. Part XIII of the Tax Act imposes a non-resident tax on various passive forms of income, including dividends, interest, rents, royalties and so forth. This 25% rate rarely applies, however, since Canada’s tax treaties generally reduce or eliminate this tax. Unlike the Tax Act, the tax treaties treat the various kinds of income differently such that each income source must be separately considered

Looking at dividends, the treaty-reduced rate under the typical treaty is 5% if the beneficial owner of the dividends is a corporation that owns at least 10% of the voting shares. In all other cases, the treaty-reduced rate for dividends is 15%. Rents on real property situated in Canada enjoy no tax reduction. Any amounts that could be allocated to royalties for software licences would enjoy a complete tax exemption under the Canada-U.S. Treaty while certain other royalties would be taxable at 10%.

Interest payments between arm’s-length parties are not taxable provided that the interest is not ‘participating debt interest’. This concept refers to debt on which interest is contingent upon the use of, or production from, property in Canada or that is computed by reference to revenue, profit, cash flow, commodity price, etc. or by reference to dividends paid or payable on the shares of a corporation (not necessarily the debtor corporation). In other words, participating debt is debt the interest on which could be characterized as disguised dividends. Given this exemption from non-resident tax on arm’s length interest payments, there is no tax disincentive to sourcing project financing abroad. When, however, debtor and creditor do not deal at arm’s length, we must rely upon a tax treaty for a reduction or exemption of the non-resident tax which would otherwise apply at a rate of 25%. Pursuant to recent amendments to the Canada-U.S. Treaty, interest payments between the two countries are wholly exempt from taxation in the source country. Under Canada’s other tax treaties, the typical rate is 10%.

(ii) Income Tax

Whereas Part XIII tax applies to passive forms of income earned in Canada by non-residents, income from carrying on business in Canada is subject to income tax under Part I of the Tax Act. It may be, for example, that the non-resident parent, or, perhaps, another member of the corporate group, will provide services to the Canadian subsidiary. In such a situation, income tax must be withheld by the Canadian subsidiary on all fees for such services at a rate of 15%. (For the application of sales tax to non-residents, see the article, Canada’s Federal Sales Tax—An Overview for Non-Resident Suppliers).

It should be noted that, whereas non-residents are not required to file Canadian tax returns in respect of non-resident tax, they are required to file Canadian tax returns in respect of income tax. As well, whereas a treaty reduction or exemption will reduce or avoid the amount of non-resident tax to be withheld, the same is not true of income tax. Income tax must be withheld at a rate of 15% regardless of the application of any tax treaty—subject only to the non-resident obtaining a waiver from the CRA. The treaty benefit is claimed, and the rebate obtained, when the tax return is filed.

(c) Acquisition Companies

The next point to consider in respect of the use of a subsidiary is the potential benefit of an acquisition company for the purchase of either Canadian assets or shares. In the absence of an acquisition company, the purchase price would simply be paid by the non-resident to the vendor and no tax benefit would be obtained by the purchaser (aside from a step-up in the cost base of the acquired shares or assets). If, however, the non-resident purchaser were to pay the amount of the purchase price to a Canadian subsidiary (which would then pay the vendor) paid-up capital would be created in the subsidiary (and the subsidiary would still obtain a step-up in the cost base of the acquired shares or assets). Thereafter, any distributions made by the subsidiary to the parent could, to the extent of the increased paid-up capital, be characterized as a tax-free distribution of capital rather than a taxable dividend or interest payment. Assuming the treaty-reduced rate under the Canada-U.S. Treaty of 5% on dividends, the tax savings to the non-resident on every $1 million of purchase price paid would be $50,000.

(d) Thin-Capitalization

Given the full tax exemption for interest payments under the Canada-U.S. Treaty, it is tempting to characterize all investment in a Canadian subsidiary by a U.S.-resident parent as debt. Unfortunately, there is already in place a “thin capitalization rule” which denies a deduction to the subsidiary for interest paid to the parent (or any other “specified non-resident”) if the debt owed to the parent (or other “specified non-resident”) exceeds 1.5 times its equity. Briefly, a “specified non-resident” is a non-resident that does not deal at arm’s length with the subsidiary or that, either alone or together with other non-arm’s-length persons, owns 25% or more of the subsidiary’s votes or value. Given the ability of the Canadian subsidiary to deduct interest payments (and not dividends), it is difficult to envision a scenario in which a U.S.-resident parent would not wish to maintain the maximum 1.5:1 debt to equity ratio. Pursuant to recent changes to the thin-cap rule, the amount of any denied interest deduction is re-characterized as a dividend payable to the non-resident. This gives rise to Part XIII withholding obligation, described above, and a tax cost to the Canadian borrower if it fails to withhold and remit that tax. The thin-capitalization rule is discussed in more detail in an article entitled, The New Thin-Cap: Lenders Beware.

(e) Transfer Pricing

Finally, the last issue of which we need to be aware in respect of subsidiaries is the potential application of the transfer pricing rules. Since a subsidiary is not a permanent establishment, the non-resident would not be subject to Canadian income tax on fees for services performed in Canada (although withholding and filing obligations discussed above would still apply). Consequently, a non-resident parent could extract profits from a Canadian subsidiary on a tax-free basis by characterizing such amounts as fees for services. Such payments would then be deductible by the Canadian subsidiary. The same result could be obtained through the sale of goods to a subsidiary. In order to prevent such abuses, the CRA applies transfer pricing rules to amounts charged for goods or services passing between Canadian corporations and non-arm’s-length non-residents. If the amounts charged differ from the amounts that would be charged between arm’s-length parties, as determined by the CRA, subsection 247(2) of the Tax Act authorizes the CRA to adjust the taxable income of the subsidiary accordingly. While the application of these rules is beyond the scope of this paper, taxpayers should be aware that these rules exist and that taxpayers are required to maintain contemporaneous documentation to identify and support all amounts paid to or received from related non-residents as consideration for goods or services.

III. Limited Partnerships

The third and final vehicle to be discussed on the Canadian side of the border is the limited partnership. The fundamental point is that the taxation of partnerships reflects the fact that they are not legal entities. While tax practitioners often speak somewhat loosely of partnerships as though they were independent entities, it is important to remember that they exist only as contractual relationships among the partners. This is true of limited partnerships as well as general partnerships notwithstanding that limited partners enjoy limited liability. Broadly speaking, then, if a non-resident were to organize its Canadian operations as a partnership, we would need to look through the partnership and consider all of the above issues in respect of each partner, which will either be carrying on business through a permanent establishment or Canadian subsidiary. Since a Canadian subsidiary is a Canadian resident, the following references to non-resident partners refer only to those non-residents that hold their partnership interests directly.

For the purposes of calculating income and losses of the partners, income is determined and expenses deducted at the partnership level and the resulting taxable income or losses allocated among the partners in accordance with the terms of the partnership agreement. In most instances, the partnership is then required to file an information return which the CRA can then cross reference with the income tax returns of each partner. This ability of limited partnerships to flow through losses to the partners while limiting liability is the reason such partnerships are often used as investment vehicles.

Partnerships with a non-resident partner are subject to specific rules relating to: (i) non-resident tax on payments to the partnership; and, (ii) income tax applicable to capital gains realized upon the disposition of taxable Canadian property held by the partnership.

(a) Non-Resident Tax

Paragraph 212(13.1)(b) of the Tax Act deems any amount paid or credited by a person resident in Canada to a partnership other than a “Canadian partnership” to be paid to a non-resident person. “Canadian Partnership” is defined in subsection 102(1) of the Tax Act to mean a partnership all of the members of which are resident in Canada. This relieves the CRA of the administrative burden of determining the residence status of each partner and the portion of each payment allocable to any non-resident partners. Instead, if even just one partner is a non-resident, Canadian-resident payors must withhold non-resident tax on dividends, interest, rents, royalties, management fees, and so forth paid or credited to the partnership.

Left on its own, the effect of this rule would be draconian given that non-resident tax is not a withholding tax per se but is a tax in and of itself and is therefore non-refundable. We therefore have a further rule according to which a partnership is to be ignored for the purpose of applying the tax treaties. In conjunction with paragraph 212(13.1)(b), this shifts the burden of determining the residence of each partner and its share of partnership income from the CRA to the taxpayers. If tax treaty benefits are to be claimed, the residence of each partner must be separately determined as of the time of each payment and the tax reduction or exemption under the relevant tax treaty must be separately applied to each partner.

If a U.S.-resident corporation owns shares through a Canadian partnership then, for the purpose of determining whether the lower of two treaty-reduced rates referred to in Part (II)(b), above, is available in respect of dividends, the U.S.-resident partner will be considered to own shares in proportion to its partnership interest. Before recent amendments to the Tax Treaty, the lower rate was never available when a partnership was interposed.

(b) Income Tax

If Canadian operations are to be structured as a partnership, it is important to consider that the permanent establishment of one non-resident partner is considered to be the permanent establishment of every non-resident partner. This rule applies to both general and limited partners. Every non-resident partner will, therefore, be subject to Canadian income tax on its share of the partnership income as though that partner were carrying on business in Canada directly through a permanent establishment.

(c) Tax Clearance Certificates

For the purpose of determining whether a tax clearance certificate is required under section 116 of the Tax Act in respect of the disposition of taxable Canadian property, the partnership is generally ignored. Only non-resident partners are required to obtain tax clearance certificates while Canadian-resident partners may rely upon their own Canadian resident status.

The difficulty arises in that a purchaser of taxable Canadian property is liable to pay tax in an amount equal to 25% of the purchase price unless either: (i) after “reasonable inquiry” it has “no reason to believe” that the vendor is a non-resident; or, (ii) a tax clearance certificate is obtained. When the vendor is a limited partnership with numerous limited partners, the obligation to conduct such due diligence would be problematic, to say the least. It is to be expected, then, that the agreement of purchase and sale would require the partnership—or, more properly, the general partner on behalf of the partnership—to represent and warrant that Canadian-resident partners are so resident and to provide tax clearance certificates for the rest.

The difficulty of obtaining tax clearance certificates from any number of non-resident investors is largely relieved by administrative concession. The CRA’s position as stated in paragraph 10 of Information Circular 72-17R5 is that a single application may be made on behalf of all non-resident partners provided that the application includes a complete listing of the non-resident partners together with their Canadian and foreign addresses, identification numbers, percentage ownership and their portion of the tax payment or security therefor. Separate tax clearance certificates are then issued for each partner and each partner must file its own Canadian income tax return to report the gain or loss.

Recent amendments to the Tax Act relieve the purchaser from the withholding and remittance obligation if: (i) the purchaser concludes after “reasonable inquiry” that the vendor is resident in a given treaty country; (ii) the sale proceeds would be exempt under the particular treaty; and, (iii) the purchaser provides the required notice to the Minister. Previously, then, a purchaser was relieved of its withholding and remittance obligations only if its reasonable inquiry disclosed that the vendor was a resident of Canada. Now, a purchaser is relieved of such obligations if its reasonable inquiry discloses that the vendor is a non-resident but is nevertheless entitled to a treaty exemption.

IV. Conclusion

As stated at the outset, it is critical that non-residents obtain proper Canadian legal advice before entering the Canadian market. The long-term tax consequences of the various available structures vary significantly and opportunities for tax savings can be considerable.

* * This article is intended only to inform or educate. It is not legal advice.  Be sure to contact a lawyer to obtain legal advice on any specific matter.


Patrick Westaway is Tax Counsel to Sorbara, Schumacher, McCann LLP, a full service law firm based in Waterloo, Ontario. Patrick advises on a broad range of Canadian taxation issues such as corporate tax planning, structuring inbound investments, corporate reorganizations, cross-border financings, tax opinions for public disclosure documents, tax assessments, personal tax matters, wealth preservation, and on federal and provincial sales tax matters (HST/GST/PST). Patrick also practices corporate and commercial law with an emphasis on the implementation of matters related to his tax planning practice.

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Tax Law – Patrick Westaway 

Those who sell goods or services in Canada have always to consider whether to become a ‘registrant’ under Canada’s federal Excise Tax Act. For residents of Canada, the issue is simple. If revenues from the sale of goods or services in Canada that became due in the four preceding calendar quarters exceed CDN$30,000.00 then registration is required unless, in broad terms, an exemption can be found. Unfortunately, matters are considerably more complicated for non-residents of Canada.

Overview of Canada’s Sales Tax System

By way of an overview, Canada has both federal and provincial levels of sales tax. The federal sales tax is referred to as the Goods and Services Tax (“GST”) whereas sales tax at the provincial level is generally referred to as provincial sales tax (“PST”)—except in Quebec, which refers to its sales tax as QST. In the provinces of Ontario, Nova Scotia, New Brunswick and Newfoundland & Labrador, the administration of GST and PST has been combined and the result referred to as Harmonized Sales Tax (“HST”). British Columbia had adopted the HST but reverted to its old PST system as of April, 2013. For simplicity’s sake, this article refers throughout to GST but such comments apply equally to HST.

GST applies at a rate of 5% of the value of the consideration for the supply, i.e., the sale price. The various PST rates range from 5% to 10% and, in non‐HST provinces, is variously applied to the net or gross sale price (sale price with or without GST). In Ontario, the total HST is 13% (GST of 5% plus PST of 8%). Tax advice should be obtained to determine whether and at what rate sales tax applies in given circumstances.

A key element of this federal system is a set of rules—known as the “place of supply” rules—to determine which province has jurisdiction to tax a given transaction. Simply stated, the province with jurisdiction is generally the one in which the supply occurs. If, for example, the goods supplied are tangible personal property then the relevant province is generally the one in which the goods are delivered or made available to the recipient. If the supply is of real estate then the relevant province is generally the one in which that real estate is located. If the supply is of intangible personal property, jurisdiction will depend on a number of factors, including the place in which the property can be used and the location of the purchaser. Different intangible properties will, however, be subject to different rules. When services are supplied, the relevant province is generally determined according to the home or business address of the purchaser, although, again, specific rules apply for certain types of services. The place of supply rules are extensive and the above examples are general and for illustrative purposes only.

When property and services are brought into an HST province from another province (whether or not such other province is also an HST province) or from outside Canada for consumption, use or supply in that HST province, the supplier is required to self‐assess since no actual purchase and sale occurs.

Significance of being a “registrant” under Canada’s Excise Tax Act

So what is the significance of being a registrant? A registrant is required to withhold and remit GST on supplies made in Canada of goods and services (provided that no exemption is available) and to file periodic GST returns. On the other side of the ledger, a registrant is entitled to claim input tax credits for (deduct) any GST paid or payable by it on taxable supplies (inputs) that are used, consumed or supplied in the course of its commercial activities. The policy behind input tax credits is that GST should only be paid by consumers, not each party in the supply chain. Consequently, to the extent that the registrant’s commercial activities involve the making of “exempt” supplies, (supplies that are not subject to GST) input tax credits are not available. Perhaps inconsistently, “taxable” supplies includes “zero‐rated” supplies (supplies that are taxable at a rate of 0%) and supplies that are made outside Canada (to which GST does not apply). Input tax credits can only be claimed if the taxpayer (including non‐residents) keeps documentation sufficient to determine the amount of GST that it paid on its inputs. This documentation is, to some extent, prescribed by regulation and varies according to the cost of the particular input.

Registration requirement as it applies to nonresidents

To return, then, to the original question, when is a non‐resident required to become a registrant? A non‐resident is generally required to become a registrant under the Excise Tax Act if it carries on business in Canada. In making this determination, the Canada Revenue Agency (the “CRA”) claims a broad discretion unfettered by any clearly articulated rules. Instead, the CRA has published various scenarios, each with a lengthy set of circumstances, and expressed an opinion in each instance. It is left to non‐residents and their tax advisors to discern patterns among these scenarios and findings.

In the context of non‐residents selling goods worldwide, for example, the CRA emphasises the solicitation of orders and delivery of goods in Canada. Yet these factors alone are insufficient to find that the non‐resident carries on business in Canada. Something more is always required. That something more may be the place of contract, which itself can involve subtle legal analysis, or the warehousing of goods in Canada.

Other factors, such as a Canadian bank account will be considered but are less significant.

Interestingly, the CRA has indicated that it does not consider it relevant that a non‐resident who sells machinery into Canada also sends its employees into Canada to install that machinery. Such activity is regarded as being merely ancillary to the sale. One must be careful when relying upon such statements, however, since there may well be situations in which the time required for the installation or the amount of the purchase price allocable to such installation services would draw a different response from the CRA. Each situation must be carefully considered in view of its own circumstances.

In addition to the foregoing considerations, special rules require non‐residents to register for GST in the following circumstances, subject, as always to qualifications and exceptions:

  • a non‐resident sells admissions to a place of amusement, seminar or other activity or event in Canada, including concerts and sporting events;
  • a non‐resident sells books, newspapers or periodicals in Canada;
  • a non‐resident organises a convention in Canada; or
  • a non‐resident exhibitor at a convention in Canada brings into the country goods for sale to delegates.

In general, registration must occur before the thirtieth day following the day on which the taxable supply is first made in Canada. Non‐residents who sell admission to a place of amusement, seminar or other activity or event, however, must register before the taxable supply is made.


In view of the foregoing, non‐residents who intend to sell goods or services in Canada should always consult their Canadian tax advisor in advance and, ideally, before finalizing the services or sales agreement. Registration obligations, whether for tax or other purposes, the effects of such registrations and even applicable tax rates are of sufficient complexity that proper advice is always essential.

* * This article is intended only to inform or educate. It is not legal advice.  Be sure to contact a lawyer to obtain legal advice on any specific matter.


Patrick Westaway is Tax Counsel to Sorbara, Schumacher, McCann LLP, a full service law firm based in Waterloo, Ontario. Patrick advises on a broad range of Canadian taxation issues such as corporate tax planning, structuring inbound investments, corporate reorganizations, cross-border financings, tax opinions for public disclosure documents, tax assessments, personal tax matters, wealth preservation, and on federal and provincial sales tax matters (HST/GST/PST). Patrick also practices corporate and commercial law with an emphasis on the implementation of matters related to his tax planning practice.

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