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Travel restrictions may create provincial permanent establishments

This content originally published on Canadian Tax Foundations newsletter: Canadian Tax Focus. Republished with permission.

Early in the COVID-19 pandemic, the CRA announced relief from pandemic-induced permanent establishments (PEs) at the national level. In particular, as an administrative matter, and in light of the extraordinary circumstances resulting from the travel restrictions, the CRA stated that it will not consider a non-resident entity to have a PE in Canada solely because its employees perform their employment duties in Canada, where the location of work is solely a result of the travel restrictions being in force.

However, tax authorities have been silent about similar relief at the provincial level. Thus, if travel restrictions cause an employee or operating partner to work remotely in a province, a PE may be created there. This may cause the business to be taxable in that province based on the revenues, salaries, and wages attributable to that province. For the many corporations and partnerships facing this conundrum—which may not even be aware of the issue—it would be helpful if the various levels of governments worked together to issue guidance that administratively relieves the creation of a provincial PE due solely to circumstances arising as a result of the pandemic.

Travel restrictions may take several forms: stay-at-home orders, recommendations against interprovincial travel, reluctance by the individual to take risks associated with travel, and mandatory quarantine periods imposed by provinces on travellers from outside the province. For example, consider a lawyer who, before the pandemic, worked and lived in British Columbia during the week and travelled back to her family in Alberta every weekend. Since the pandemic began, she has ceased her travel back to British Columbia every Monday morning and instead carries on her duties from her family home in Alberta. Does this create a PE in Alberta? This could necessitate extra provincial registration in Alberta to facilitate the filing of an Alberta tax return and the payment of Alberta tax.

Different rules apply to employees and partners.


Contact your trusted Stark & Marsh Advisor or an office close to you.

Source: RSM Canada LLP

Used with permission as a member of RSM Canada Alliance

Travel restrictions may create provincial permanent establishments (

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The information contained herein is general in nature and based on authorities that are subject to change. RSM Canada LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM Canada LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

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