• Samer Tohme

Canada Has No Plans To Increase COVID-Relief For Business Residency Determinations, According To CRA

COVID-19 Relief - Credit Availability Program for Highly Affected Sectors (HASCAP) Guarantee

The Canada Revenue Agency, also known as CRA, has stated that its advice on the effect of travel limits on assessments of corporate citizenship would no longer be extended. In view of COVID-19 travel limits, the CRA released guidelines on foreign income tax issues in 2020. According to the guidelines of March 16, 2020, when assessing possible concurrent corporate citizenship cases, the CRA would not consider a company to have its position of successful management in Canada as a corporation's director must engage in board meetings from Canada due to travel constraints. This advice extends to companies bound by an income tax agreement that uses the corporation's successful management as a citizenship tiebreaker.

This guideline expired and was not renewed on September 30, 2020. The CRA announced on May 5, 2021, CRA Roundtable, held as part of the 2021 International Fiscal Association (IFA) Canada Conference. This does not plan to expand the scope of this advice and that corporate residency dependent on central control. Also, the management should be decided on a particular circumstance basis.

The CRA also commented on new supplementary guidelines on permanent establishment, which was released on April 1, 2021. It affirmed its stance that when a person works from home in Canada for a United States employer due to travel constraints, applying the applicable treaty conditions to their case would normally not result in the employer being found to have a permanent establishment under either the trade or business or organization tests for a legal entity. Consequently, the most recent revelations by CRA make it clear that assessments of corporate citizenship and the permanent resident will eventually be made based on an examination of all conditions, which includes travel limitations due to COVID-19.

Fortunately, technologies can assist in achieving their goals. Blue J's Permanent Establishment method utilizes machine learning to forecast when a U.S. resident may be considered a permanent establishment in Canada under the Canada-U.S. Tax Treaty, while the Central Management and Control predictor examines all possible variables to decide whether a company could be a citizen in Canada.

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