Carrying on Business in Canada For Non-Residents Blog

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Meaning of Carrying On Business in Canada

March 31, 2014
Crystal Taylor

This posting was authored by Crystal Taylor
a Partner in the Saskatoon Office
and Graham Purse
an associate in the Regina Office of
Miller Thomson LLP

As a non-resident engaging in activities in Canada, it is important to understand whether your activities will result in income tax being levied in Canada.  As general rule, a non-resident is liable to pay Canadian income tax on business income earned in Canada if the non-resident carries on business in Canada.  The threshold question to determine liability for Canadian income tax, therefore, is whether activities will constitute “carrying on business” in Canada.

Carrying on Business in Canada

There is no exclusive definition of the meaning of carrying on business in Canada under the Income Tax Act (Canada).  Therefore, its meaning is derived from the case law. [See discussion below.]

Section 253 of the Income Tax Act (Canada) provides for a non-exclusive extended meaning of carrying on business in Canada. Under that provision, a non-resident person will be deemed to be carrying on business in Canada if the non-resident person:

(a) produces, grows, mines, creates, manufactures, fabricates, improves, packs, preserves or constructs, in whole or in part, anything in Canada whether or not the person exports that thing without selling it before exportation,

(b) solicits orders or offers anything for sale in Canada through an agent or servant, whether the contract or transaction is to be completed inside or outside Canada or partly in and partly outside Canada, or

(c) disposes of

(i) Canadian resource property, except where an amount in respect of the disposition is included under paragraph 66.2(1)(a) or 66.4(1)(a),

(ii) property (other than depreciable property) that is a timber resource property, an option in respect of a timber resource property or an interest in, or for civil law a right in, a timber resource property, or

(iii) property (other than capital property) that is real or immovable property situated in Canada, including an option in respect of such property or an interest in, or for civil law a real right in, such property, whether or not the property is in existence,

the person shall be deemed, in respect of the activity or disposition, to have been carrying on business in Canada in the year.

If the non-resident person is not carrying on business in Canada either because it does not meet the common law meaning of carrying on business as developed by the case law or the legislated extended meaning under section 253, then the non-resident person will not (aside from Part XIII withholding on Canadian source income, the disposition of taxable Canadian property or the earning of employment income in Canada) be liable for tax in Canada.

Permanent Establishment

Although the case law threshold for carrying on business in Canada is relatively low, many of Canada’s tax treaties with other countries provide relief where a business is not carried on through a “permanent establishment” in Canada.  Generally speaking, Canada’s various tax treaties provide that tax will be exigible in Canada only to the extent the profits can be attributed to a permanent establishment in Canada.[1] For instance, this is the case in the Convention Between Canada and the United States of America With Respect to Taxes on Income and on Capital (the “Canada-U.S. Tax Treaty”). For U.S. entities carrying on business in Canada, the question is whether the activities are carried on through a “permanent establishment”. If there is no “permanent establishment” in Canada, then the U.S entity will not be taxable in Canada. Conversely, where a Canadian permanent establishment exists, the U.S. entity will be taxed in Canada on the business profits attributable to that permanent establishment. The permanent establishment rules can be found in Article V of the Canada-U.S. Tax Treaty.

Case Law

The following is a general discussion of the relevant case law that has considered the meaning of “carrying on business” in Canada and the meaning of “permanent establishment”.

Maya Forestales S.A. v. The Queen, 2005 TCC 66

The taxpayer was a Costa Rica corporation (“Maya”) which, between 1994 and 1998, offered Canadian investors the opportunity to invest in a teak-tree plantation in Costa Rica. As a result, more than eighty Canadian investors purchased land on the plantation. The Minister assessed on the basis that Maya carried on business in Canada. Maya took the position that the contracts related to the sale of Costa Rican property and that services relating thereto were performed in Costa Rica.

The Court considered the application of paragraph 253(b) of the Income Tax Act (Canada), which gives an extended meaning to carrying on business, and includes instances where a non-resident “solicits or offers anything for sale in Canada through an agent or servant, whether the contract or transaction is to be completed inside or outside Canada or partly in and partly outside Canada.” The taxpayer argued that the reasonable allocation provisions of paragraph 4(1)(b) of the Income Tax Act (Canada) should have led to an allocation of most of the income to Costa Rica. However, the Court noted that there is no way for the tax authorities to do a reasonable allocation when the taxpayer refuses to provide the necessary information. The Court concluded that Maya carried on business in Canada on the basis that it offered investments for sale in Canada. In the Court’s view, the argument that the contract was to be completed outside of Canada was not persuasive. The Court noted on this point that paragraph 253(b) overturns the common law rule, and that paragraph 253(b) specifically captures situations in which a contract is to be completed partly or entirely outside Canada.

Knights of Columbus v. The Queen, 2008 TCC 307

The appellant, Knights of Columbus (“Knights”), was a US corporation. Relying upon Canadian agents, it provided life insurance to its members in Canada. In the period in question, the Knights raised approximately 25% of its funds from its insurance activities. While not directly relevant to the Canadian income tax issues being considered, the Court noted that Knights was not subject to income tax on its insurance activities in the United States. At issue was whether income tax was exigible in Canada on profits arising from the insurance business. The key question before the Court was whether Knights had a permanent establishment in Canada. Knights operated in Canada with several different types of agents, including 220 field agents, 22 general agents, a field director, and a chief agent.  The Court found that Knights did not have a permanent establishment in Canada, notwithstanding the significant number of agents it engaged in Canada.

The analysis focussed on the Canada-U.S. Tax Treaty, which states that a permanent establishment in Canada can arise from: (a) carrying on business through a fixed place of business in Canada (the “fixed place of business test”); or (b) using agents – other than independent agents – who habitually exercise in Canada authority to conclude contracts in the name of the corporation.

The Court held that a permanent establishment did not exist pursuant to the fixed place of business test. Because the field agents were independent contractors, the organizing and recordkeeping they conducted in their own homes could not be on account of anything other than their own businesses. Further, the Court noted that the agents’ homes had no Knights signage, the agents’ homes were not under the control of Knights, Knights made no operational decisions at the agents’ homes, and Knights had not regular access to the premises.

The Court also held that a permanent establishment did not exist pursuant to the agency test. The Court concluded that the general agents and chief agent were of independent status and acting in the ordinary course of their business. The Court also found that the field agents did not have authority to conclude contracts. As such, none of the agents were caught by the agency test.

CRA Technical Interpretations

The following is a general discussion of the relevant technical interpretations from Canada Revenue Agency (“CRA”) that have considered the meaning of “permanent establishment”.

In 2010-0381951E5, CRA was asked whether a US corporation’s activities in Canada constituted a permanent establishment based on a number of different scenarios.  CRA explained that the determination of the existence of a permanent establishment is a question of fact and stated that Article 5 of the OECD Model Tax Convention provides the appropriate framework for the determination of whether a permanent establishment exists. Specifically: (a) there must be a place of business; (b) the place of business must be fixed; and (c) the non-resident must be carrying on its business wholly or partly through this fixed place of business.

In 2010-0383661R3, CRA was asked to consider a situation in which a Canadian subsidiary provided services to a non-resident parent corporation. The Canadian subsidiary was a taxable Canadian corporation that carried on business in Canada and used its own employees. The question was whether the parent corporation would be carrying on business in Canada. On the facts as presented, CRA took the position that accounting and financial services, the supply of a chief compliance officer, the provision of anti-money laundering services, knowledge management services, and marketing services by the Canadian subsidiary would in themselves not cause the parent corporation to be carrying on business in Canada.

In 2011-0426551R3, CRA considered whether the amendment of a services agreement to provide additional services by a Canadian corporation to a non-resident corporation would result in the non-resident corporation carrying on business in Canada. The Canadian subsidiary carried on its own business and used its own employees to provide computer and support services. The services agreement in question was drafted to ensure that the Canadian subsidiary was prohibited from engaging in any types of activities that would be caught by the permanent establishment rules. CRA concluded that the amendments would not cause the parent to be carrying on business in Canada. Those amendments included risk assessment, development and implementation of an audit plan, maintenance of an audit function, evaluation of changing services and process, issuing reports, among other things.

If you want more information about this topic please contact Crystal Taylor, Partner, at 306.667.5613 or or Graham Purse, Associate, at 306.347.8338 or

[1] C. Kyres, “Carrying On Business in Canada”, Canadian Tax Journal (1995), Vol. 45, No. 5 / no 5 p 1631

Canada’s anti-spam legislation (CASL) will affect non-residents who carry on business in Canada

February 26, 2014
J. Andrew Sprague

In December 2013, the Canadian federal government announced[1] firm dates for Canada’s anti-spam legislation (commonly referred to as CASL) to come into force, some three years after Bill C-28 (the operative bill) received Royal Assent in December 2010.[2]

Implementation Dates

To assist individuals and organizations, the Canadian government has decided to implement CASL in the following stages: 

(i)     CASL’s anti-spam provisions will come into force on July 1, 2014;

(ii)    CASL’s provisions pertaining to the installation of computer programs will come into force on January 15, 2015; and

(iii)  CASL’s provisions pertaining to the private right of action will come into force on July 1, 2017.[3]


Activities captured under CASL

CASL regulates a broad range of activities, including:

(i)     the sending of commercial electronic messages;

(ii)    the altering of transmission data in an electronic message;

(iii)  unsolicited installation of computer programs;

(iv)  engaging in fraudulent or misleading practices through electronic messages or websites;

(v)   the use of spyware, malware, botnets, and phishing;

(vi)  automated collection of electronic addresses (email harvesting); and

(vii) unlawful use of computers to collect personal information


How does CASL apply to non-residents?

The sending of commercial electronic messages

CASL’s provisions applicable to the sending of commercial electronic messages apply where a computer system located in Canada is used to send or access such messages.  Therefore, if a non-resident located outside of Canada sends a message to an individual or organization located in Canada, CASL will apply to the non-resident.  If the non-resident is located in Canada, CASL will also apply.

The altering of transmission data in an electronic message

CASL’s provisions applicable to the altering of transmission data in an electronic message apply where a computer system located in Canada is used to send, route or access the electronic message.  Therefore, like the example above, if a Canadian accesses a message that was altered by a non-resident located outside of Canada, CASL will apply to the non-resident.  If the non-resident is located in Canada, CASL will also apply.

The unsolicited installation of computer programs

Certain CASL provisions apply where an unsolicited computer program is installed on a computer system located in Canada at the relevant time or if the person who installed the computer program is either in Canada at the relevant time or is acting under the direction of a person who is in Canada at the time when they gave the directions.

In addition, CASL prohibits individuals and organizations from aiding, inducing, procuring or causing to be procured the doing of any of the CASL restrictions pertaining to sending of commercial electronic messages, the altering of transmission data in an electronic message, and the unsolicited installation of computer programs.


How is the Canadian government able to enforce CASL against non-residents?

CASL permits the Government of Canada, the Canadian Radio-television and Telecommunications Commission (CRTC), the Canadian Commissioner of Competition or the Canadian Privacy Commissioner to enter into a written agreement or arrangement with the government of a foreign state, an international organization of states or an international organization established by the governments of states, or any institution of any such government or organization.

The purpose of the agreement or arrangement would be to share information between signatories that pertains to:

(i)     information that a foreign state, organization or institution has that may be relevant to one or more of the prohibitions in CASL; or

(ii)    information that Canada has that may be relevant to an investigation or proceeding in respect of a contravention of the laws of a foreign state that addresses conduct that is substantially similar to conduct that is prohibited under CASL.

CASL only permits an agreement or arrangement to be entered into if the sharing of information will be done on a reciprocal basis.

The prohibitions in CASL are types of activities that governments around the world are trying to crack down on.  As a result, there is an increased desire by foreign states to co-operate with each other and to help each other root out individuals and organizations who may be located in one jurisdiction but who are unlawfully targeting, intentionally or unintentionally, individuals and organizations located in another jurisdiction.


Other CASL Details

The CRTC and Industry Canada both have regulatory making authority under CASL, and the CRTC, the Canadian Commissioner of Competition and the Canadian Privacy Commissioner all have CASL enforcement powers.


Should CASL really be a concern for non-residents who carry on business in Canada?

While a non-resident may not alter transmission data in an electronic message or install unsolicited computer programs onto a computer system, and thus not run the risk of being off-side with those prohibitions in CASL, a non-resident who carries on business in Canada will most certainly need to be concerned about CASL’s prohibitions regarding the sending of commercial electronic messages.


CASL’s Commercial Electronic Messages (CEMs)

The anti-spam provisions of CASL, as they are commonly referred to as, prohibit a sender from transmitting a commercial electronic message (“CEM”) to an electronic address, unless: (i) the intended recipient has consented; and (ii) the message includes certain prescribed information.

Under CASL, “Electronic messages” mean a message sent by any means of telecommunication, and includes text, sound, voice, and image messages.  “Electronic address” means an address used in connection with the transmission of an electronic message, and includes email, text messaging/SMS, instant messaging, social networks (Facebook®, LinkedIn®, etc.), other online services (e.g., web forums, portals), telephone accounts, and “any similar account”.

“Commercial” refers to anything that “encourages participation in commercial activity”, including: (i) an offer to purchase, sell or lease products, goods or service; (ii) an offer to provide a business, sell or lease investment or gaming opportunity; or (iii) advertising or promotion of these and other activities or of a person carrying out or intending to carry out these and other activities.

Factors that would affect the determination of whether a message encourages participation in commercial activity include: (i) content of the message; (ii) hyperlinks in the message to content on a website or other database; and (iii) contact information contained in the message.  For these purposes, a “commercial activity” is “any particular transaction, act or conduct or any regular course of conduct that is of a commercial character, whether or not the person who carries it out does so in the expectation of profit…” [Emphasis Added]

CEMs may be sent only with a recipient’s express or implied consent.  Under CASL, the onus of proving sufficient consent rests with the sender of a CEM, and the recipient of a CEM does not have to prove that he or she did not provide consent.  Also, an electronic message that requests consent to send a CEM is, under CASL, deemed to be a CEM. 

CASL contains a number of requirements around how consents may be obtained, and what information must be included in commercial electronic message.  In additional, CASL prescribes that a certain type of unsubscribe mechanism must be made available to message recipients.

CASL also contains a number of available exemptions from its anti-spam provisions as well as a number of exemptions from its consent requirements but not its information and unsubscribe mechanism requirements.

There are a number of things that non-residents can do to prepare for CASL.  These include:

(i)     conducting an audit/gap analysis of their current electronic communication practices;

(ii)    reviewing and updating their privacy policies, including website privacy policy (where applicable), and the terms of use/terms of service for their website(s) (where applicable); and

(iii)  following completion of an audit/gap analysis, considering CASL’s requirements and assessing what changes might be required to their current policies, procedures, processes, practices, and/or computer systems and networks in order to ensure CASL compliance.

If you would like to obtain a sample CASL electronic communications survey, a CASL compliance preparedness checklist, or additional information about CASL, please contact your Miller Thomson LLP advisor or the author.

J. Andrew Sprague is an information technology and business lawyer in Miller Thomson’s Toronto office.  You can follow him on Twitter® @canadaantispam.

[1] See Government of Canada press release entitled “Harper Government Delivers on Commitment to Protect Canadian Consumers from Spam”, available at

[2] See

[3] See Order 81000-2-1795 (SI/TR), available at

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