2022-0926331C6 IFA 2022 - Q10 - Corporate Residence Approach

Principal Issues: Whether CRA is considering changes to its approach to corporate residency, given that we are now in the age of video conferencing and ESG concerns.

Position: Our approach to corporate residency is based on relevant statutory rules and common law principles.

Reasons: The role of the CRA is to administer the Income Tax Act in accordance with its provisions and based on principles established by common law.

Author: Yew, Gina
Section: -

2022 International Fiscal Association Conference

CRA Roundtable

Question 10: Changes to Corporate Residence Approach

It was raised at the 2021 United Nations climate change conference (COP26) that the corporate residency rules are not only out of date in the age of video conferencing but potentially also not in sync with Environmental, Social and Governance (ESG) concerns. In particular, too much focus on the location of board meetings encourages both waste of time and energy in that motivated taxpayers will simply fly where they need to and distracts from ensuring board composition is based on good governance. In light of the developments of the last two years is the CRA considering changes to its approach to corporate residency?

CRA Response:

The role of the CRA is to administer the Income Tax Act (the “Act”). Under the Act, the residence of a corporation that is incorporated outside of Canada is generally based on common law principles dictated by the Courts, subject to the enactment of statutory rules generally initiated by the Department of Finance. Subsection 250(5), for example, can deem a corporation not to be resident in Canada where the corporation is, under a tax treaty with another country, resident in the other country and not resident in Canada.

The common law test for determining corporate residence is generally based on where the corporation’s central management and control actually abides. This depends on the facts and must thus be determined after a scrutiny of the whole “course of business and trading” of the corporation (De Beers Consolidated Mines Ltd. v. Howe, [1906] AC 455 (HL)).

Usually, central management and control is considered to abide where the members of the board of directors meet to make important and strategic decisions regarding the affairs of the corporation, unless central management of control is actually exercised elsewhere. However, the presence of board meetings in the country in which the corporation is asserting residence would not, in and of itself, be sufficient to conclude that the corporation is resident in that country. It is well-established under common law that it is the actual place of management, not the place in which it ought to be managed, which fixes the residence of a corporation. The courts have repeatedly considered evidence beyond the location of board meetings in order to look at the whole “course of business and trading” of a corporation.

Gina Yew
2022-092633
May17, 2022

Response prepared in collaboration with:
Darren Poiré and Pauline Motard
International Tax Division
International and Large Business Directorate
Compliance Programs Branch

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