If a nonresident normally works outside Canada but is unable to leave the country due to pandemic-related travel restrictions, the extra time spent in Canada won't count toward the 183 days that would trigger a taxable presence in the country, the CRA said in guidance posted Friday. The eased restrictions apply for individual tax purposes and for purposes of determining a specific type of permanent establishment of a foreign company, the guidance said.
Nonresidents carrying on business in Canada are required to file a tax return to claim an exemption from Canadian income tax, and that obligation continues to apply, the CRA said. However, the guidance said the agency won't consider a nonresident entity to have a permanent establishment in Canada only "because its employees perform their employment duties in Canada solely as a result of the travel restrictions being in force."
The CRA offered similar relief regarding agency permanent establishments, which can arise when a dependent agent concludes contracts on behalf of a nonresident entity. No agency permanent establishment will be considered to have been created while travel restrictions are in force if those activities are limited to that period and would not have been performed in Canada but for the travel restrictions, the guidance said.
Under Canadian treaties, a "services permanent establishment" is deemed to exist if an individual from a foreign entity spends 183 days in the country. Days spent in Canada solely due to travel restrictions will be excluded from the count, the CRA said.
A spokesman for the CRA on Tuesday cited additional relief measures.
The Canadian government extended the April 30 deadline for filing tax returns to June 1, with any amount owed now due Sept. 1, the spokesman, Christopher Doody, told Law360. Corporate income tax returns otherwise due in June, July or August are now also due on Sept. 1, he said.
Other countries have made similar adjustments to treaty provisions. Foreign individuals who can't leave the U.S. for reasons related to the COVID-19 outbreak won't see their time in the country count toward determining taxable residency, the Internal Revenue Service said in April.
France and Germany adjusted their treaty as well on Monday to maintain the tax status of workers who would regularly cross the border but are unable to do so because of travel restrictions imposed to stop the spread of the virus.
--Additional reporting by Natalie Olivo and Todd Buell. Editing by Joyce Laskowski.
For a reprint of this article, please contact reprints@law360.com.
