Implications of COVID-19 for Corporate Residency


The COVID-19 pandemic has created many changes for corporate management throughout Canada. In the past, directors often traveled outside of Canada for purposes of attending board meetings in foreign jurisdictions. Directors often made such travel arrangements in order to maintain a corporation’s residency outside of Canada for tax purposes. However, the ongoing COVID-19 pandemic has significantly restricted directors’ abilities to travel abroad and, in turn, attend meetings in foreign jurisdictions.

Directors have, in response, created alternative local or “virtual” arrangements (i.e. video or teleconferencing) for such meetings. However, these arrangements may have potentially significant income tax consequences for a corporate taxpayer. This bulletin will briefly address some of these consequences:

General Principles of Residency

The Income Tax Act (Canada)[1] (the “ITA”) imposes tax on corporations resident in Canada. The Courts generally determine a corporation’s residency by applying the common law test of “central management and control”. The test provides that a corporation is resident in the country where its central management and control is exercised. This is generally the country where the directors of the corporation exercise their responsibilities.[2] It should also be noted that a corporation may be resident in one or more different countries (e.g. the directors may be exercising their responsibilities in multiple different countries).[3]

The Courts examine a number of factors for purposes of determining whether a corporation’s directors exercise their responsibilities in a particular country, including the location of board of directors meetings. As noted above, directors of corporations, especially foreign subsidiaries of Canadian entities, often arrange board meetings in foreign jurisdictions for purposes of exercising their responsibilities outside of Canada and maintaining a corporation’s non-resident status (i.e. not resident in Canada). Directors may travel to one or multiple jurisdictions for purposes of attending these meetings.

COVID-19 Implications for Residency

It is unlikely that directors will be able to travel to foreign jurisdictions in the foreseeable future. As a result, directors may decide to hold and attend “virtual” board meetings- i.e. meetings over the phone or a video platform. These virtual meetings certainly facilitate the decision-making process.

However, such meetings may inadvertently cause a corporation to become resident in Canada. For example, consider a set of circumstances in which all directors of a (normally) non-resident corporation live in Canada. These directors are working from home as a result of the COVID-19 pandemic. The directors decide to hold and attend regular board meetings on a video platform from March to December, 2020. The directors make various important decisions at such meetings. However, the directors have, by attending the virtual meetings, effectively exercised their responsibilities in Canada (as opposed to making such decisions at a board meeting outside of Canada). It’s possible that the corporation may consequentially become resident in Canada for its 2020 taxation year.

The question of residency becomes more complicated in circumstances where directors attend a virtual meeting from multiple jurisdictions. For example, consider a situation in which more than half of the directors of a (normally) non-resident corporation live in Canada whereas the rest of the directors live in other countries. These directors normally meet in a single foreign jurisdiction for purposes of attending board meetings. However, the directors must, as a result of the pandemic, attend virtual board meetings. The directors exercise their decision-making responsibilities in each of their respective jurisdictions of residence (e.g. in each of their homes in Canada or outside Canada). Depending on the facts, a corporation could still become resident in Canada, regardless of how many directors actually exercise their decision-making responsibilities from Canada (assuming at least one director does so). The corporation may also become a resident of other countries in which directors joined the virtual meeting.

However, many countries, including Canada, have entered bilateral or multilateral treaties that address such circumstances. These treaties include “tie-breaker” rules. The tie-breaker rules apply in circumstances where a corporation is resident in more than on country as a result of the aforementioned common law principles (among other rules). The rules may deem a corporation, resident in more than one country, to be resident in only one country for income tax purposes. These rules may only further complicate the question of residency in circumstances where directors decide to hold a virtual board meeting “across” multiple jurisdictions and a corporation subsequently becomes resident in multiple countries.

It should be noted that the aforementioned common law principles have exceptions. In some circumstances, a corporation’s directors may not actually manage and control the corporation. Rather, a shareholder of the corporation (for example) may manage and control the corporation. The directors may simply carry out the instructions of the shareholder. In such circumstances, the Courts typically examine where the other individuals (such as the shareholder) are making decisions for purposes of determining the residence of a corporation; not necessarily the location of a meeting of the board of directors.[4] This means that the travel restrictions on directors may not ultimately affect a determination of a corporation’s residence (however, they may impact the ability of the “decision-making” individuals to travel to another jurisdiction).

Income Tax Consequences

If a corporation becomes resident in Canada, the corporation will generally become subject to income tax on its worldwide taxable income- regardless of whether the corporation earns income from Canadian sources or carries on a business in Canada. In addition, the ITA imposes a number of other obligations on corporations resident in Canada, including obligations relating to reporting, remittance, and the filing of income tax returns (all with sometimes significant administrative costs).

In addition, the ITA has special rules that apply in circumstances where a corporation becomes or ceases to be a resident of Canada.[5] This includes deemed disposition rules that may have adverse consequences for a corporation that even momentarily becomes resident in Canada. In particular, paragraphs 128.1(1)(b) and 128.1(4)(b) respectively deem a taxpayer to have disposed of property prior to becoming, or ceasing to be, resident in Canada. If a corporation becomes resident in Canada in 2020, and ceases to be resident in 2021, these rules may deem a corporation to have disposed of certain properties and, consequentially, realized taxable capital gains.

Further, a Canadian resident corporation that pays certain amounts to non-residents (i.e. dividends, interest, royalties, for example) may be liable to withhold and remit withholding tax under Part XIII of the ITA.

Next Steps

The Canada Revenue Agency (“CRA”) recently provided guidance with respect to various international income tax issues arising in the context of the COVID-19 pandemic. The guidance is effective from March 16 to June 29, 2020. The CRA may extend the application of such guidance until a later date.

The guidance outlines the CRA’s administrative approach to determining a corporation’s residency. In particular, the guidance addresses a scenario in which the directors of a corporation, normally resident in a foreign jurisdiction, must attend a board meeting in Canada due to travel restrictions (meaning the corporation may potentially become resident in Canada). It appears as if “travel restrictions” include restrictions imposed by both governments and businesses.[6] The CRA’s approach to determining a corporation’s residency, in such circumstances, depends upon whether the corporation is normally resident in a foreign jurisdiction with which Canada has a tax treaty:

  1. If the corporation is normally resident in a foreign jurisdiction with which Canada has not entered a tax treaty, the CRA will determine the corporation’s residence on a case-by-case basis (the CRA has not provided any further guidance on this point).
  2. If the corporation is normally resident in a foreign jurisdiction with which Canada has entered a tax treaty, and the treaty includes a tie-breaker rule that applies based on the corporation’s country of incorporation, the CRA acknowledges that the treaty will typically address the residency issue.
  3. If the corporation is normally resident in a foreign jurisdiction with which Canada has entered a tax treaty, and the treaty includes a tie-breaker rule that applies based on the corporation’s place of effective management (among other factors), the CRA has stated that, in such circumstances: “…as an administrative matter, where a director of a corporation must participate in a board meeting from Canada because of the Travel Restrictions, the Agency will not consider the corporation to become resident in Canada solely for that reason.”[7]

This approach also applies to circumstances involving similar types of entities, including limited liability companies (and, in some circumstances, commercial trusts). In addition, the CRA notes that the determination of a corporation’s place of central management and control is based on various factors, not just the location of board meetings. The CRA may, therefore, still consider a corporation to be resident in Canada regardless of whether the corporation’s board meetings actually take place in Canada.

The CRA also outlined its approach for addressing various other tax and administrative issues in the context of COVID-19, including: (i) the determination of an individual’s residency; (ii) whether an entity is carrying on a business, or has a permanent establishment, in Canada; (iii) the taxation of cross-border employment income; (iv) delayed waiver requests in respect of payments to non-residents; and (v) the processing of section 116 certificates for dispositions, by non-resident vendors, of taxable Canadian property. Our colleague, Alain Ranger, further discusses the CRA’s administrative measures in a bulletin published on May 29, 2020.

Government agencies in other countries have also provided some guidance relating to this issue. HM Revenue & Customs (UK) states on its website that: “We do not consider that a company will necessarily become resident in the UK because a few board meetings are held here, or because some decisions are taken in the UK over a short period of time.”[8] While the Internal Revenue Service (US) has not commented on corporate residency it posted a FAQ online in which the agency offered relief to some foreign businesses that have activities in the US. The IRS states that certain business activities in the US will not be counted for up to 60 consecutive calendar days for purposes of determining whether an individual or business is engaged in a US trade or business. This relief is only available if those activities would not have been performed in the US but for COVID-19 travel disruption.[9]

While the CRA’s recent guidance provides some relief for taxpayers, virtual board of directors meetings in 2020 may still have significant tax consequences for a corporate taxpayer. Prior to holding such a meeting, (normally) non-resident corporations who have directors located in Canada should consider the possibility of, among other things: (i) postponing board meetings to a future time (e.g. a time when travel may be possible); and/or (ii) appointing new directors in other jurisdictions to replace Canadian directors. A corporation’s constating documents should be carefully reviewed to determine whether such actions are possible.

If you have any questions with respect to corporate residency, please do not hesitate to contact Christopher Steeves at or Devon LaBuik at

[1] Income Tax Act, RSC, 1985, c 1 (5th Supp) [ITA]; all references to provisions herein are references to provisions under the ITA.

[2] See: De Beers Consolidated Mines Ltd v Howe, [1906] AC 455 (UK HL); The King v British Columbia Electric Railway Co, [2 DTC 692] [1945] C.T.C. 162 (Ex. Ct.); Crossley Carpets (Canada) Ltd v MNR (1968), 67 DTC 522 (Ex. Ct.)and the useful summary (obiter dicta) in Garron Family Trust (Trustee of) v R, 2010 FCA 309, aff’d 2012 SCC 144 [Garron].

[3] See: Crossley Carpets (Canada) Limited v MNR, ibid; Spur Oil Ltd v R, 1980 CarswellNat 235, 80 D.T.C. 6105.

[4] See: Unit Construction Co Ltd v Bullock, [1960] AC 351 (Eng CA); The courts have generally established a high threshold for purposes of displacing the assumption that a corporation’s directors exercise decision-making functions for a corporation (and not anyone else).

[5] ITA, supra note 1 at s 128.1.

[6] The CRA has also acknowledged that such travel restrictions may affect taxpayers after the official date on which the relevant authority lifts the restrictions.

[7] Canada Revenue Agency, “Guidance on international income tax issues raised by the COVID-19 crisis” (19 May 2020), online: <> (last modified 22 May 2020).

[8] HM Revenue & Customs, “HMRC Approach to Company Residence in response to COVID-19 Pandemic” (9 April 2020), online: GOV.UK <>.

[9] Internal Revenue Service, “Information for nonresident aliens and foreign businesses impacted by COVID-19 travel disruptions” (21 April 2020), online: IRS <>.


Christopher Steeves is the Leader of Fasken Martineau's Tax practice group and is based in Toronto.