A corporation is liable to pay tax if:
– It is a resident corporation of Canada
– It is carrying on business in Canada
– It derives income by rendering services in Canada
A Corporation formed after April 26, 1965 is deemed to be a resident in Canada through out the taxation year. If a Corporation was a non-resident Corporation before April 27, 1965 its status will stay unchanged if its management and control remains outside Canada and it does not carry any business in Canada.
A Corporation is deemed to be a resident in Canada if it was incorporated in Canada before April 9, 1959 and:
– On June 18, 1971 was a foreign Corporation that was controlled by a Corporation resident in Canada
– During the ten year period ending on June 18, 1971 carried on a business in a country other than Canada, but during this period paid dividends to shareholders in upon which the shareholders paid tax to the government of the other country
– At any time in the taxation year or in any preceding tax year commencing after 1971, it was resident in Canada or carried on business in Canada
A corporation in general is considered to be a resident in a country where its management and central control is situated. So if a company that was incorporated in Canada but has its management and control in France will not be considered a resident in Canada. A company can have its head office and its main office in another country. Under such a scenario a corporation is considered a resident in both countries. Company will reside in a country where the legal power and control of the corporation exist.
As per Canada – US tax convention of 1980 a corporation is not subject to taxation in Canada for its industrial and commercial profits if the corporation is formed under the laws of the United States. However, if it is a permanent establishment in Canada its earnings will be subject to taxation in Canada.
For taxation years beginning after 1998 all non-resident corporations are required to file an information return where they claim treaty exemption from part I tax on their Canadian source business income.
Disclaimer:
This information is for educational purposes only. It does not constitute any legal advice or opinion. Please do not use any of its contents without seeking a professional advice.
References:
http://www.cra-arc.gc.ca/
Canadian Master Tasx Guide by CCH
Mansoor Suhail (Mani)
Accountant
MS TAX – BSBA – EA – ICIA – RA
Tax for Canada and U.S.A
Web: www.theaccountingandtax.com and www.taxservicesguru.com
Blog: http://taxservicesguru.blogspot.ca
416 – 283 – 8774