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Unformatted text preview: DRAFT RESIDENT/ NON-RESIDENT ISSUES January 2012 Page A. The Basis of Taxation 2 B. Corporate Residency 5 C. Dual Residency Rule 8 D. Resident in Canada for Part of the Year 9 E. Non-Residents Subject to Tax Under ITA 2(3) and ITA 115(1) 12 F. Sale of Taxable Canadian Property 17 G. Taxable Canadian Property 18 H. Non-Residents Subject to Part XIII Tax 19 I. Rental Property Income Election 20 J. Election for Canadian Benefits 23 K. Competent Authority 25 L. Permanent Establishment 28 M. Snowbirds 36 N. Branch Tax 38 O. Finance Eliminates Withholding On Cross-Border Interest 39 P. Provincial Residency 39 Q. Regulation 105 Withholding Requirements 40 1 A. THE BASIS OF TAXATION 1. EXCLUSIVE TAXATION IN THE COUNTRY OF SOURCE Some authors have proposed taxation in the country of source for business activities that exceed a certain threshold, likely a minimum level of sales into the jurisdiction. The threshold would have to be high enough to exclude the activities of most small businesses and ensure that tax collected exceeded the compliance costs of the jurisdiction. Supporters argue that this regime is consistent with the principle that the residence country has the primary right to investment income, while the source country has the primary right to tax business income (the benefit principle). This principle suggests that the country where the consumption takes place is the source of the income. A number of issues emerge in attempting to implement a source based taxation system. One concern is what creates a sale in a jurisdiction? Normally this would be the location where the goods or services are consumed, which can be determined by a billing address. This becomes more difficult in electronic transactions of digital products, and would make it necessary to trace the country where each consumer is located. Another issue under a source based system relates to accounting for profits, as profitable manufacturers may use intermediaries with insignificant net income to complete sales into large markets on their behalf. If source was the base, and all countries taxed on this basis, there would be no double taxation problem, assuming that the source rules are clearly written and understood. However, source as the sole basis allows for the transfer of income to lower taxed jurisdictions. Therefore, the wealthy could transfer their source of income and escape domestic tax, but still enjoy the benefits of the domestic public services. Source is used in Canada to tax non-residents. Policy objectives of source based taxation: (a) recognizes the legitimacy of Canadas claim to tax because the income is clearly connected to Canada economic activity is in Canada e.g....
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This note was uploaded on 02/19/2012 for the course ACCT 4454 taught by Professor Barry during the Spring '12 term at Saint Mary's University Texas.
- Spring '12