Cases
Gupta v. The Queen, 2000 DTC 6326 (FCA)
Rental income received by the taxpayer from a house represented income from property rather than income from a business.
The Queen v. Canada Southern Railway Co., 86 DTC 6097, [1986] 1 CTC 284 (FCA)
The function of regulation 805(1) is to exempt from withholding tax amounts that are subject to taxation under Part I by virtue of falling within subparagraph 115(1)(a)(ii) (income from businesses carried on in Canada). Since dividends credited by the taxpayer to a controlling U.S. shareholder ("Penn Central") were property income to Penn Central, and thus not subject to Part I tax, the exemption in Regulation 805(1) was not available, notwithstanding that the amount of dividends was periodically offset against rental payments which Penn Central owed to the taxpayer in respect of a railway business which Penn Central carried on in Canada.
Twentieth Century Fox Film Corp. v. The Queen, 85 DTC 5513, [1985] 2 CTC 328 (FCTD)
The taxpayer was a Delaware corporation which produced and distributed films, TV programs and music. The Canadian distribution was handled by its Canadian branch. Addy J found that all of the film-rental revenues of the Canadian branch of the taxpayer were exempted from withholding tax under ITA s. 212(5) by Reg. 802 or (if Reg. 802 did not apply to the exclusion of Reg. 805) under Reg. 805(1). Addy J stated (at p. 5521) that "the rental of films in Canada as in the United States forms an essential and integral part of the business of the plaintiff and that the revenues from film rentals must necessarily be considered as reasonably attributable to the business which was carried on in Canada." In particular, although "none of the production costs are incurred here and therefore none of the benefits directly attributable to the quality of production originate here…this does not mean...that the revenues themselves are not to be considered as reasonably attributable to an active business of the plaintiff carried on in Canada nor does it mean that some proportion of the revenues is to be excluded" (p. 5519).
See summary under Reg. 802.
See Also
Arbutus Gardens Apartments Corp. v. The Queen, 98 DTC 1795, Docket: 96-2033-IT-G (TCC)
A limited partnership having non-resident limited partners was found to be carrying on business for purposes of s. 2(3) of the Act and Regulation 805 given that the apartment complex owned by it (consisting of seven buildings) was operated in a manner that involved the hiring of five full-time managers, two full-time maintenance persons, two full-time gardeners and entailed the provision of far more services to the tenants (many of whom were seniors) than would normally be the case in an apartment building. Accordingly, rents received were not subject to withholding tax. Bowman TCJ. noted (at p. 1798) that "the fact that the income is rental income and on one view of the matter might be seen as income from property is not inconsistent with the income being from the carrying on of a business".
Administrative Policy
23 January 2015 T.I. 2013-0509771E5 - Oil & gas payments made to U.S. resident
Mr. A, a U.S. resident, grants the right to drill for or take the oil & gas from his Canadian freehold property to a Canadian company, in consideration inter alia for annual royalties payable out of any oil & gas production.
After noting that per Reg. 8201, the meaning of "permanent establishment" is taken From Art. V of the Canada- U.S. Treaty, CRA stated:
Therefore, if Mr. A carries on a business through a PE in Canada and the oil & gas royalties are attributable to the PE, Part XIII… of the Act does not apply, and the company is not required to withhold tax… . However, the company is required to issue an NR4 to Mr. A, and use the exemption code "Q"… .
If Mr. A carries on a business described in any of paragraphs (a) to (g) of the definition of "principal business corporation" in subsection 66(15) of the Act, and Mr. A receives royalties in respect of Canadian resource property that are not attributable to that business, the royalties will nevertheless be taxable under Part I of the Act pursuant to subparagraph 115(1)(a)(iii.3). In that case, Part XIII will not apply to the royalties by virtue of paragraph 805(b)… . The company is required to… use the exemption code "S" … .
Where neither paragraph 805(a) nor (b)… apply, the annual royalties paid to Mr. A by the Canadian company are taxable to him under…subparagraph 212(1)(d)(v)… .
14 July 1994 Memorandum (C.T.O. "Non-Resident Partner & 216 Election (7558-3)")
If a partnership is determined to be carrying on business in Canada, there will be no Part XIII tax liability in respect of rent paid to the partnership on the presumption that a non-resident partner is considered to be carrying on business through a permanent establishment in Canada. On the other hand, if it is determined that the partnership is earning property income rather than business income, the tenants will be required to withhold Part XIII tax at the rate of 25% on the gross rental payments made to the partnerships from the point of time when the partnership ceases to be a Canadian Partnership.
93 C.P.T.J. - Q.27
Where a non-resident has working interests in oil and gas wells which represent permanent establishments in Canada through which it carries on business, and also has resource royalty income from Canada, the royalties if not attributable to the business carried on in Canada will be included in its income under s. 115(1)(a)(iii.3) and, therefore, would be included in income referred to in Regulation 805(1). However, the payor of the royalties would not be relieved from its withholding tax obligation unless a waiver were obtained.
IT-81R "Partnerships - Income of Non-Resident Partners"
Articles
Ian V. MacInnis, "Potential Double Taxation of Rental Income to Non-Residents?", CCH Tax Topics, No. 1965, 5 November 2009, p. 1.
Scheuermann, "Income and Commodity Tax Aspects of Acquiring and Exploiting Technology", 1991 Conference Report, c. 45.
Discussion of the potential for double taxation where the non-resident does not have a permanent establishment in Canada, of the interplay with Regulation 802, and of the availability of a waiver.
Walker, "Effect of Recent Amendments to Regulation 805 on Non-Residents Earning Passive Income in Canada", Canadian Current Tax, November, 1989
Discussion of potential double taxation problem.