Provincial Income Allocation Newsletter
Permanent Establishment – Corporation uses substantial machinery or equipment
This newsletter presents the Canada Revenue Agency's administrative position on the phrase "at any time in a taxation year" regarding the determination of whether a permanent establishment (PE) exists in a jurisdiction when substantial machinery or equipment is used by a corporation.
The current legislation regarding the use of substantial machinery or equipment does not define specific and reasonable time frames for the use of substantial machinery or equipment.
Paragraph 400(2)(e) of the Income Tax Regulations states that where a corporation uses substantial machinery or equipment in a province "at any time in a taxation year," the corporation is deemed to have a PE in that province. The phrase "at any time" suggests that there is no minimum period required in order to deem a PE.
The Canada Revenue Agency has developed the following administrative position regarding the phrase "at any time in a taxation year":
Generally, a corporation is deemed to have a PE in a province if the corporation uses substantial machinery or equipment, whether rented or owned, in a province
- for a period of 30 continuous days or more on a particular site or project; or
- for a cumulative total of 90 days or more in a 12-month period.
The 30-day test applies to each contract or project. The 90-day test applies to all contracts and projects entered into by the corporation in the province in a 12-month period. Each is a stand-alone test, and both can result in a deemed PE of the corporation. If the 12-month period straddles two tax years, the corporation will be deemed to have a permanent establishment in the province in the second tax year, after 30 continuous days or 90 cumulative days.
This administrative position is only a guideline for taxpayers and is intended to give them some certainty as to when the domestic taxing authorities agree that a PE exists.
An assertion by a corporation on its income tax return that a permanent establishment exists in a particular jurisdiction despite using substantial machinery or equipment for less than 30 continuous days or 90 cumulative days will not be challenged.
Paragraph 400(2)(e) of the Income Tax Regulations
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