Subsection 11(5.1)
Administrative Policy
Bulletin 3004 "Management Fees, Rent, Royalties and Similar Amounts Paid or Payable to Non-residents" January 2002
2. Subsection 11(5.1) describes the payments which must be added to income. These payments fall into the following categories:
1. Management or administrative fees or charges including fees and charges based on the sale of goods or services, production or profits, but not amounts specifically excluded from Part XIII withholding tax as described in subsection 212(4) of the Income Tax Act (Canada) (ITA).
2. Rents, royalties or similar payments, but not amounts specifically excluded from Part XIII withholding tax as described in subparagraphs 212(1)(d)(vi) to (ix) of the ITA. Subject to certain excluded amounts discussed in paragraph 5 below, examples of payments to which the add-back applies are:
•know-how payments for special knowledge, skill or techniques, technical fees for the use of confidential technical information
•payments for the use, in Canada, of any property, invention, trade mark, design or model plan, secret formula, process, trade name or patent
•certain payments for services of an industrial, commercial or scientific character performed by a non-resident person •certain payments made to a non-resident to ensure that property or information will not be used by the non-resident or any other person. 3.A right in, or for the use of: •motion picture film, or
•a film or video tape or any other type of reproductive media used in television, except where used solely for a news program produced in Canada. ...
5. Other excluded payments are discussed in the following table:
If the payment is
•for management fees based on the cost plus mark-up of specific expenses, refer to CTA subparagraph 11(5.1)(1)(ii) and subsection 11(5.3)
•for rents, royalties and similar payments related to the use in Canada of computer software or a patent or information related to industrial, commercial or scientific experience or a design, model, plan, secret formula or process, refer to CTA subparagraph 11(5.1)(2)(ii)
•made to a related non-resident person who is acting as an agent of the Canadian payor corporation and the payments are subsequently remitted to an arm's length non-resident person entitled to the payment, refer to CTA paragraph 11(5.2)(1)
•an unpaid amount included in the corporation's income under section 78 of the ITA, refer to CTA subsection 11(5.4)
Section 53
Cases
Harold Gross Machinery Inc. v. Minister of Finance (1998), 162 DLR (4th) 509 (Ont CA)
The taxpayer, which was required to provide a guarantee of payment for its purchases of machinery worldwide, did so by having its bank arrange letters of credit secured by corporate assets. The associated liabilities of the taxpayer, which were described in its financial statements as "accounts payable -secured by letters of credit" were found to represent credits advanced by the bank and indebtedness secured against corporate property and, therefore, were includable in its taxable paid-up capital.
Subsection 53(1)
Cases
Upper Lake Shipping Ltd. v. Minister of Finance, 98 DTC 6264 (Ont CA)
Given that generally accepted accounting principles require that a government grant relating to a capital asset be included in retained earnings or "earned surplus" only as the assets are used in the operation of the business, the taxpayer was permitted to follow the same approach in computing its paid-up capital for Ontario capital tax purposes.
Section 61
Cases
QEW 427 Dodge Chrysler (1991) Inc. v. Minister of Revenue (2000), 49 OR (3d) 776 (S CT J), aff'd (2002), 50 OR (3d) 460 (S Ct J, Div Ct), 2002 DTC 7228
Chrysler Canada would sell cars to the taxpayer (an automobile dealer) under conditional sales contracts, and sell the conditional sales contracts to the Canadian finance arm of Chrysler (Chrysler Credit). In finding that the amounts owing by the taxpayer to Chrysler Credit qualified as accounts payable and, therefore, were excluded from its paid-up capital for its 1993 taxation year, Trafford J. stated (at p. 799):
"The Act includes in the definition of 'current accounts payable' amounts owed to a creditor including a financial institution and not just suppliers. The amount may be part of a line of credit that is secured and bears interest."
Subsection 302(7)
Cases
W.E. Roth Construction Ltd. v. Minister of Finance (2001), 141 OAC 366 (CA)
The taxpayer managed its Ontario properties through four Ontario employees, whereas its Alberta properties were managed by three corporations pursuant to management agreements with it. In finding that the fees paid in Alberta were not deemed to be salary by Regulation 302(7) under the Corporations Tax Act (Ontario), Feldman J.A. noted that in Alberta the modus operandi of the taxpayer was to contract out management of the properties rather than to have employees of the taxpayer manage those properties and that the scheme of the provisions was not to equate all labour whether performed by employees or contractors.