A corporation that is resident in Canada for Canadian income tax
purposes is subject to Canadian income tax on its worldwide income.
On the other hand, corporations that are not resident in Canada are
only subject to Canadian income tax on their Canadian-source
income. Accordingly, residency is an important factor in
determining which Canadian income tax regime applies.
Generally, a corporation will be deemed to be a resident in
Canada if it has been incorporated in Canada. Absent a deeming
provision, a corporation can also be resident in Canada based on
common law principles. The common law test for corporate tax
residency is the place where the corporation's central
management and control is exercised. This test is a question of
fact. Some of the factors that courts have looked to in concluding
the tax residency of a corporation include:
the place where directors meet (this has been a particularly
the principal place where business is conducted;
the residency of the directors;
the influence that foreign directors have in comparison with
the location of corporate books and records; and
the location of the corporation's bank accounts.
The application of income tax treaties may also affect the
residency of a corporation for Canadian income tax purposes.
Businesses should keep these factors in mind when selecting
corporate directors and developing policies that govern how a
corporation's management should be undertaken (for example,
maintaining a majority of Canadian resident directors if Canadian
residency is desired). With increased business travel, ensuring
that the desired corporate residency is maintained has become more
difficult, but it can still be effectively managed with the
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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