Cases
Furness, Withy & Co. Ltd. v. MNR, 68 DTC 5033, [1968] CTC 35, [1968] S.C.R. 221
Article 5 of the Canada-U.K. Income Tax Convention of 1946 did not exempt earnings of a U.K.-resident shipping company derived from managing or agency or stevedoring services which it rendered in Canada to other corporations, although it was entitled to exemption respecting amounts which arose from charges made by its Canadian branches for agency and stevedoring services to ships which were owned and chartered by it and were operated in its own shipping service.
Administrative Policy
23 October 2012 T.I. 2011-0431301E5 - Meaning of Substantial Operation
CRA was asked whether an operation that provides temporary services, for a period of less than six months, constitutes a "substantial operation" for purposes of Art. 8, para. 2 of the Canada-Sweden Convention. CRA responded:
The treaty does not provide specific time frames for determining the minimum period required to establish a "substantial operation" in a Contracting State. The treaty states that where a non-resident has a substantial operation in Canada for purposes of operating its ships or aircraft "during a taxation year" between places within Canada, Canada may tax the profits from such operation. The phrase "during a taxation year" suggests that there is no minimum period required in order to establish the existence of a substantial operation.
CRA also provided general comments on the meaning of "substantial operation":
The ordinary meaning of this term has been considered in Canadian domestic case law. In particular, Canadian courts considered the meaning of the term "substantial" in (SCC) Manning Timber Products Ltd. v MNR [52 DTC 1148]. Based on the facts of this case, the term "substantial" took on the meaning of "large quantity" and "important". However, the courts commented that the meaning of this term had a number of different senses, all depending on the context in which it is used. In (TCC) Taylor v the Queen [2001] 3 CTC 2126, a substantial operation was identified in terms of the factors of capital and time spent on the business.
The CRA has previously expressed its views on the factors considered in determining whether an active trade or business is "substantial" for the purposes of Article XXIX-A(3) of the Canada-United States Tax Convention. In comparing the size of the trade or business outside Canada and the income-generating activity within Canada, the CRA considered factors such as income, assets, payroll expense, the size and nature of relevant markets or other similar measures.
14 February 2012 T.I. 2011-0428531E5 -
the 183-day test in Art. VIII, para. 6 of the Canada-US Convention is applied on an item-buy-item basis (e.g., for a particular boxcar).
31 October 1991 T.I. (Tax Window, No. 12, p. 17, ΒΆ1559)
Where a taxable Canadian corporation leases a ship on a bare boat basis from a corporation resident and managed in the Netherlands, Part XIII tax will be payable on any lease payments relating to voyages made principally for the purpose of transporting passengers or goods between Canadian ports; and the lease payments for other voyages will be exempt.