Chapter 1: Corporate Residency Flashcards
How does Canada determine tax liability for corporations regarding residency?
Corporations, like individuals, are subject to Part I tax based on their residency, which can be factual or deemed. The residency concepts for corporations are identical to those for individuals.
What is the key case law that established the concept of factual residency for corporations in Canada?
The key case is DeBeers Consolidated Mines from 1906, which determined that a company resides for tax purposes where its central management and control (CMC) abides.
What is “Central Management and Control” (CMC) for a corporation?
CMC refers to where the major policy decisions of the corporation, including strategy and overall management, are made, usually by the board of directors.
Does the place of incorporation determine factual residency for a corporation?
No, the place of incorporation is not relevant to factual residency.
Residency is determined based on where the CMC is located.
What are the steps to identify who holds the CMC of a corporation?
First, identify who is responsible for CMC (usually the board of directors).
Second, determine where the board exercises their control (where meetings or decisions are made).
What are the two rules under ITA 250(4) for deemed residency of a corporation?
- Any corporation incorporated in Canada after April 26, 1965, is automatically deemed a resident of Canada.
- For corporations incorporated before this date, they must either carry on business in Canada or have their CMC in Canada.
What is the five-step analysis for determining the residency of a corporation?
Determine if the corporation is either a factual or deemed resident of Canada.
Determine if the corporation is a resident of another country (dual resident).
If a dual resident, determine if Canada has an income tax treaty with the other country.
Apply the treaty tie-breaker rules if applicable.
If tie-breaker rules favor the other country, the corporation is deemed a non-resident of Canada.
