Ask Tax Question

Can 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.
Canada Tax Treaty Moving to South Africa
TaxConnections Members... Answer This Question Want To be One of Our Tax Experts? Register Here

Tax Professional Answers

User Photo
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).
Leave a Comment 246 weeks ago

User Photo
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?
Leave a Comment 245 weeks ago

Meet Leading Tax Advisors

User Photo John Stancil

Lakeland, Florida, USA

Tax Advisor/CEO

User Photo Peter J. Scalise

New York, New York, USA

Federal Tax Credits & Incentives Practice Leader

User Photo John Dundon, II EA

Denver, Colorado, USA

Tax Director

User Photo Steven Potts JD EA IAR

Fullerton, California, USA


User Photo Caran Ebert, CPA

Topanga, California, USA

Tax Advisor

User Photo William Rogers, CFP, MBA, EA

Rancho Santa Fe, California, USA

CEO/Certified Financial Advisor

User Photo Randy Tarpey

Tyrone , Pennsylvania, USA


User Photo Lisa Nason CPA, MST

Greenville, South Carolina, USA

Managing Shareholder

User Photo David Hughey, EA, MAcc

Longview, Washington, USA

Tax Consultant/Tax Advisor


Santa Clara, California, USA

Tax Principal - President

User Photo Hugo Van Zyl

Stellenbosch, South Africa

Exchange Control & Master Tax Practitioner (SA)

User Photo Douglas Stransky

Boston, Massachusetts, USA

Tax Partner, International Tax

User Photo Chad Hatalla

Rheinfelden, Switzerland

Senior Tax Manager

User Photo Larry Stolberg, CPA, CA

Toronto Mississauga Oakville Burlington Hamilton, Canada

Tax Specialist

User Photo Dr. Daniel Erasmus

West Palm Beach, Florida, USA

Managing Partner/EMEA

View/Select our Current List of Tax Topics

# A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Previous PageNext Page

Contact Us Today