2019-0798821C6 IFA 2019 Q.7

Principal Issues: Where an amount of an indirect benefit would be included in computing a non-resident taxpayer’s income under subsection 15(1) of the Act, if the amount of the benefit were a payment made directly to the non-resident taxpayer and if the non-resident taxpayer were resident in Canada, would the CRA interpret paragraph 246(1)(a) of the Act as including such a shareholder’s benefit in that non-resident taxpayer’s taxable income earned in Canada even though the benefit is akin to income from property rather than any of the Canadian income sources described in subsection 2(3) of the Act?

Position: To the extent that only subsection 15(1) of the Act is relevant in the analysis as to whether a benefit is being conferred under paragraph 246(1)(a), such a benefit would generally not be considered to be taxable income earned in Canada, as it would not be included under subsection 2(3) and Division D of Part I of the Act.

Reasons: A non-resident’s tax liability under Part I of the Act, including any liability that may result from the inclusion of a benefit under paragraph 246(1)(a) of the Act, is generally determined by the non-resident taxpayer’s taxable income earned in Canada under subsection 2(3) and Division D of Part I of the Act. Whether the amount of the benefit can be considered to be taxable income earned in Canada will depend, among other things, on the nature of the benefit being conferred.

Author: Grondin, Yves
Section: 15(1), 56(2), 214(3)(a) and 246(1)

2019 International Fiscal Association Conference

CRA Roundtable

Question 7 – Subsection 246(1) and Non-Residents

Would the CRA apply paragraph 246(1)(a) of the Income Tax Act (the “Act”) to include in a non-resident’s taxable income earned in Canada an amount of an indirect benefit from a non-resident, where the benefit is not from one of the three Canadian income sources described in subsection 2(3) of the Act, being employment in Canada, carrying on business in Canada and dispositions of taxable Canadian property?

More specifically, where an amount of an indirect benefit would be included in computing a non-resident taxpayer’s income under subsection 15(1) of the Act, if the amount of the benefit were a payment made directly to the non-resident taxpayer and if the non-resident taxpayer were resident in Canada, would the CRA interpret paragraph 246(1)(a) of the Act as including such a shareholder’s benefit in that non-resident taxpayer’s taxable income earned in Canada, even though the benefit is akin to income from property rather than any of the Canadian income sources described in subsection 2(3) of the Act?

CRA Response

Given the limited facts that are available in the question above, our response will be restricted to some general comments. More definite conclusions could be reached in the context of an advance income tax ruling request.

In its preamble, subsection 246(1) of the Act generally states that the provision applies where a person confers a benefit, directly or indirectly, or by any other means whatever, on a taxpayer and the amount of the benefit would have been included in the taxpayer's income if the amount were a payment made directly by the person to the taxpayer and if that taxpayer were resident in Canada.

If the conditions in this preamble are met, paragraph 246(1)(a) of the Act generally provides that the amount of the benefit shall be included in computing the taxpayer's income or taxable income earned in Canada under Part I of the Act.

In general terms, a non-resident’s tax liability under Part I of the Act, including any liability that may result from the inclusion of a benefit under paragraph 246(1)(a) of the Act, is determined by the non-resident taxpayer’s taxable income earned in Canada under subsection 2(3) and Division D of Part I of the Act. Whether the amount of the benefit can be considered in computing the taxpayer’s taxable income earned in Canada for purposes of paragraph 246(1)(a) of the Act will depend, among other things, on the nature of the benefit being conferred.

In the scenario provided, to the extent that only subsection 15(1) of the Act is relevant in the analysis as to whether a benefit is being conferred under paragraph 246(1)(a), such a benefit would generally not be considered to be taxable income earned in Canada, as it would generally not be included under subsection 2(3) and Division D of Part I of the Act.

It should be noted that, even if the amount of the benefit is not taxable income earned in Canada, it could still be relevant in computing the income of the non-resident taxpayer, as provided under paragraph 250.1(b) of the Act.

Yves Grondin/Marie-Claude Routhier
2019-079882
May 15, 2019 

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