Contact UsCan treaty SA/Canada allow Canadian Company to be exclusively taxed in SA? My client is ex Canada, re-enters his birth country South Africa, as ordinarily tax resident. His Canadian company is retained because of ongoing contracts and the source of the income is both Canadian and not Canadian. There is no more than a rep office to receive post and protect his artist rights, the effective management is undoubtedly SA.
Client stated: "A lot of my Canadian banked earnings come from my global clients and most of it is intellectual property (usage rights/residuals/royalties) , and the same with my SA income, however they insist on taxing it all as labour income." Article 12 of the SA/Canada treaty and the habitual abode tie breaker rule suggests, I submit, all taxing rights belongs to SA unless and to the extent that there is Canadian Sourced income. All income from outside Canada are now, I submit, taxable in SA only. It is just not typical treaty rules to allow a country like Canada to tax SA sourced income in Canada, just because the taxpayer once live in Manitoba? Your comment please, as I fear I may be missing the critical issues or my counter part reads the treaty totally different to myself. Save the client from choosing between us...please, help.
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Tax Professional Answers
Blair Dwyer
In any tax treaty, the rules depend on the residence of the entity in question for purposes of the treaty. Most treaties treat a dual-resident corporation as resident in the jurisdiction of incorporation. As a result, a Canadian corporation would be treated as a resident of Canada for purposes of a bilateral tax treaty (such as the Canada-South Africa Treaty). So even if the mind and management of the Canadian corporation is in South Africa (so that the Canadian corporation is considered a resident of SA under SA law), the Canadian corporation will be a resident of Canada for treaty purposes. Any treaty provision that exempts a SA resident from Canadian tax simply will not apply to the Canadian corporation (which is a resident of Canada for treaty purposes). The client needs to make arrangements to carry on his business through some other entity (but without triggering a disposition of the business carried on by the Canadian corporation).
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573 weeks ago
Hugo Van Zyl
Thanx Blair. I follow what you said which appears to be a strict interpretation of sub Article 4.3 (a).
Reading sub-article 5.5 it appears to me because the director is in SA, his presence and authority or role as director living in SA could deem the Canadian company to have a PE in SA in which case we need to carefully consider sub-section 7.1
Being the sole director is all the business not (sub-article 7.2) not conducted from SA?
After all each and every decision is made in SA and the answer would be to appoint a second director to ensure Canadian director deals with Canadian contracts? Perhaps I am too conservative or too narrow in my application of the attribution to the PE in SA as the attribution is more to the use of the IP in Canada than the making available the IP from SA by SA resident director?
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572 weeks ago
Reading sub-article 5.5 it appears to me because the director is in SA, his presence and authority or role as director living in SA could deem the Canadian company to have a PE in SA in which case we need to carefully consider sub-section 7.1
Being the sole director is all the business not (sub-article 7.2) not conducted from SA?
After all each and every decision is made in SA and the answer would be to appoint a second director to ensure Canadian director deals with Canadian contracts? Perhaps I am too conservative or too narrow in my application of the attribution to the PE in SA as the attribution is more to the use of the IP in Canada than the making available the IP from SA by SA resident director?