Many Canadian corporations form a foreign subsidiary (“Forco”) in zero or low-tax jurisdictions in order to reduce their tax liabilities.

This is a strategy that can work as long as the following four elements are present:

1) Forco is not resident in Canada, having regard to common law concepts of corporate residency (“mind and management”).

2) The income of Forco is considered to be income from an “active business”, as opposed to “foreign accrual property income” (“FAPI”).

3) Forco’s business is not carried on in Canada, and Read More