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) (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. 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).
In light of the COVID-19 crisis and the travel restrictions implemented by Canada and many other jurisdictions as well as by businesses (the “Travel Restrictions”), the CRA has temporarily relaxed the way it administers certain rules and requirements contained in the Income Tax Act (Canada) (“ITA”) to account for the “forced” and involuntary presence of many non-residents in Canada for an extended period of time. As no one knows how long these Travel Restrictions will remain in effect, the guidelines described below, which apply from March 16, 2020 to June 29, 2020, may be extended by the CRA if necessary.
Deemed Residence: 183-Day Rule
For an individual, being subject to Canadian tax depends on his or her tax residence, which remains essentially a question of fact determined according to connecting factors established in common law. On the other hand, and subject to any applicable tax treaty, a non-resident who, in a calendar year, remains in Canada for more than 183 days is deemed to be a Canadian tax resident for the entire year and as such, becomes subject to Canadian tax on his worldwide source of income.
On April 22, 2020, the Canada Revenue
Agency (“CRA”) indicated that it would allow special favorable tax treatment to
employees working from home during the COVID-19 crisis.
In particular, the CRA will accept that
the reimbursement of an employee, for amounts spent on personal computer
equipment to enable the employee to work from home, mainly benefits the
employer. As a result, the reimbursed amount will not be a taxable benefit to
the employee. This relief is to apply
for amounts up to $500 and only in respect of amounts for which the employee
In the normal course, an employer can
provide an employee with an allowance for home office expenses, which is a
taxable benefit for the employee. Alternatively, the employer can decide to
reimburse an employee expense upon presentation of an invoice, in which case
the reimbursement will be a taxable benefit if it primarily benefits the
employee rather than the employer. Usually if an employee receives a
reimbursement for home office equipment, it is characterized as a personal
expense, primarily for the employee’s benefit, and therefore a taxable benefit.
The CRA’s announcement does not change
the tax consequences for employers. An
employer providing an employee with reimbursements for home office expenses,
even certain capital expenses such as the acquisition of tools, will normally
be entitled to deduct the full amount of the reimbursements as a business
expense, provided the amount is reasonable in the circumstances.
 See CRA Interpretation, 2011-0402581I7 —
Allowance for workspace in the home, July 12, 2011. See also, CRA,
Interpretation Bulletin, IT-352R2 — Employee’s Expenses, Including Work Space
in Home Expenses, August 26, 1994.
 See CRA, Tech Interp, 1999-0013955 —
Construction and expenses — workspace, February 3, 2000.
Further to the announcement on March 27, 2020 that GST/HST and Customs
Duties payment deadlines would be extended due to the COVID pandemic, the
Canada Revenue Agency has provided some additional guidance in the form of a
Question and Answer document posted on the Canada Revenue Agency website.
The document deals with the delays granted to payments of tax, but also to questions of the processing of returns, the payment of refunds and the granting of rebates. One of the key things for all taxpayers to remember is that the due dates for the filing of returns has not changed, only the requirement to make payments of tax without incurring interest charges or penalties has changed. Excise taxes and duties are all still due at the ordinary times.
Do not hesitate to contact us if you need further information about the changes to your tax obligations during the COVID Pandemic.
On March 18, 2020, the Canadian government announced economic measures to help stabilize the Canadian economy in response to the COVID-19 pandemic. These measures are intended to provide up to $27 billion in direct support to Canadian workers and businesses. This newsflash will provide a brief summary of the key tax measures that were included with this announcement. Similar measures were announced on March 17, 2020 by the Quebec government. Fasken commentary on the Quebec measures can also be found on our website.
Tax Return Filing Deadlines
With 2019 tax return filing deadlines approaching, the Canada Revenue Agency (“CRA”) will defer the filing due date for the 2019 tax returns of individuals, including certain trusts. For certain individuals (other than trusts), the return filing due date will be deferred from April 30 until June 1, 2020. Self-employed individuals (and their spouses) are unaffected by these measures as the filing due date for 2019 tax returns remains June 15, 2020.
For trusts having a taxation year ending on December 31, 2019, the return filing due date will be extended from March 30, 2020 to May 1, 2020.
Upcoming Income Tax Liabilities
CRA will permit all taxpayers (including businesses) to defer, until after August 31, 2020, the payment of any amounts on account their income tax liabilities that become owing on or after March 18, 2020 and before September, 2020. This relief applies to income tax balances due, as well as instalments on account of such taxes. CRA will not charge interest or penalties on these amounts during this period.
It should be noted that the timing of payment of other Canadian taxes including GST/HST, payroll taxes and non-resident withholding taxes are not deferred.
Suspension of Audit Activity
CRA will not contact any small or medium businesses to initiate any post assessment GST/HST or income tax audits for the next four weeks (ending April 15, 2020) and the CRA will temporarily suspend audit interaction with taxpayers and representatives for the “vast majority of businesses”.
Other Tax Proposals
Unlike the administrative relief described above, some of the measures announced require Parliamentary approval. The Canadian government has proposed to provide a special payment by early May 2020 through the Goods and Services Tax credit (“GSTC”). The proposal is to double the maximum annual GSTC payment amounts for the 2019-20 benefit year. The Minister of Finance (Canada) estimates that the average increase to income for those benefiting from this measure will be approximately $400 for single individuals and nearly $600 for couples.
The Canadian government is also proposing to increase the maximum annual Canada Child Benefit (“CCB”) payment amounts for the 2019-20 benefit year by $300 per child.
Finally, these measures contain a proposal to provide “eligible small employers” a wage subsidy for a period of three months. The announcement states that eligible small employers will include corporations eligible for the small business deduction, as well as non-profit organizations and charities but provides no further specifics. The proposed subsidy is to be equal to 10% of remuneration paid during that period, up to a maximum subsidy of $1,375 per employee and $25,000 per employer. The announcement does not stipulate when the three month period will begin but provides that eligible businesses will be able to deduct the amount of such subsidy from the income tax withholdings that they would otherwise remit in respect of their employees’ remuneration.
Canada’s prime minister indicated that all of the major political parties in Parliament support these measures and will likely reconvene Parliament to approve them in the coming days.