In addition, where appropriate, the CRA will consider adopting a similar approach in determining the residency of a commercial trust.

• Permanent establishment: Non-residents must pay tax on income from a business carried on in Canada. In general, a resident of a country with which Canada has a tax treaty is only liable to pay tax in Canada if the person’s activities meet the definition of “permanent establishment” in the treaty. When the employees of a non-resident entity are required to perform their duties in Canada due to travel restrictions, the CRA will not consider this alone to be sufficient to create a permanent establishment in Canada. The non-resident entity must still file a return for that year, however.

Also, where a dependent agent contracts in Canada on behalf of a non-resident entity during the travel restrictions, activities limited to the period during which the restrictions are in effect will not be considered sufficient to create a permanent establishment in Canada, as long as those activities would not otherwise have been performed in Canada.

To determine if an individual meets the 183-day presence requirement under a tax treaty’s permanent establishment provision, the CRA will exclude any day of physical presence in Canada that is solely due to travel restrictions.

• Carrying on business: Where the non-resident is resident in a country with which Canada does not have a tax treaty, that non-resident must file a return if it carries on business in Canada and the non-resident employer will be subject to Canadian withholding obligations unless a waiver of withholding has been obtained. If the non-resident can demonstrate to the CRA that it carried on a business in Canada solely because of the travel restrictions, the CRA will consider administrative flexibility on a case-by-case basis.

• Cross-border employment income: According to the Canada-US Tax Treaty, Canada is authorized to tax the salaries, wages and other similar remunerations that a resident of the United States receives in respect of employment services provided in Canada. However, this income is not taxable in Canada if it does not exceed CAD $10,000, or if the individual stays in Canada for a period or periods the total of which is less than 183 days in any 12-month period that begins or ends in the taxation year and the income is not payable by an employer who is resident in Canada or through an employer’s “permanent establishment” in Canada. Due to the COVID-19 crisis, some residents of the United States may be forced to perform their duties in Canada for an extended period of time due to travel restrictions. Where an individual is a resident of the United States, but performs employment functions in Canada only because of travel restrictions, the days during which the individual performs those duties will not be taken into account for the purposes of calculating the 183 days.

The CRA will take this approach when applying this test under other Canadian tax treaties.