The Income Tax Act does not provide for a conclusive definition of corporate residence. An entity may be considered a resident of Canada either under the Act’s deeming rules, or under common law rules. Under the Act rules, a corporation is deemed to have been resident in Canada throughout a tax year if:
- it was incorporated in Canada after 26 April 1965; or
- it was incorporated in Canada before 27 April 1965, and, during any tax year after 26 April 1965, it:
- was resident in Canada under the common-law principles discussed below; or
- carried on business in Canada.
A corporation which is not deemed to be a resident under the Act, may still be deemed to be a resident under common law rules. Pursuant to those rules, a company is deemed to be resident where its real business is carried on, i.e., where central management and control abides. This is a question of fact and will usually be the place where the members of the board of directors meet and take their decisions.
Finally, a company resident in Canada may still be deemed to be non-resident if the tie-breaker rule in a tax treaty determines it to be resident of the other Contracting State.
In response to the COVID-19 pandemic, Canada published “Guidance on International Income Tax Issues raised by the COVID-19 crisis”, applicable from 16 March 2020 to 29 June 2020. The guidance provides the following clarification on corporate tax residence:
- If one or more directors of a non-resident corporation convene a meeting of the Board of Directors in Canada because of travel restrictions, the corporate residence will be determined as follows:
- For corporations located in jurisdictions having tax treaties with Canada that consider the place of effective management for determining residence, then if a director of such corporation participates in a board meeting from Canada because of the travel restrictions, the corporation will not be considered as a resident in Canada;
- For corporations located in jurisdictions without a tax treaty with Canada, the corporate residence involving the resolution of potential dual residence will be determined on a case-by-case basis; and
- For entities established in foreign jurisdictions that are considered corporations under Canadian income tax law (e.g. limited liability companies), the corporate residence will be determined on a case-by-case basis.