Would Deferred Commissions Pass Permanent Establishment Test?

This is our main tax information forum which deals with topics concerning Canadians living and working in the U.S., U.S. citizens contemplating working in Canada, and all aspects of Canadian and U.S. income tax and related adminstrative issues.

Moderator: Mark T Serbinski CA CPA

Post Reply
lightoasis
Posts: 6
Joined: Fri Jan 17, 2020 12:07 pm

Would Deferred Commissions Pass Permanent Establishment Test?

Post by lightoasis »

I work as a sales representative where part of my commissions are often paid out several years later. For example, a sale in 2019 would generate a commission that is paid out in 2023 or 2024.

I will be moving to the US this year and severing all ties with Canada besides maintaining a bank account to receive those future commissions.

I will not be continuing self-employment while in the US, simply receiving the future commissions. Also, I'm obligated to collect HST on these commissions, so it would have to be remitted at least annually.

Would my Canadian tax obligations be absolved in this situation or would I still need to pay tax on the income in Canada?

I'm fairly sure if the CRA sees me remitting a large amount in HST annually but not claiming any income that there would be an issue.

Is my instinct right in this situation?
nelsona
Posts: 18314
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: Would Deferred Commissions Pass Permanent Establishment Test?

Post by nelsona »

This income would be taxable in canads (and US) in the years it is paid to you.
I don't know what permanent establishment has to do with your questions.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
lightoasis
Posts: 6
Joined: Fri Jan 17, 2020 12:07 pm

Re: Would Deferred Commissions Pass Permanent Establishment Test?

Post by lightoasis »

nelsona wrote:
> This income would be taxable in canads (and US) in the years it is paid to
> you.
> I don't know what permanent establishment has to do with your questions.

As far as I understood the permanent establishment test, if you don't have one in Canada but are receiving income from a Canadian source, you'd not be liable to pay taxes on it to Canada.

I was curious if this was the case on deferred commissions that are paid out while no longer living in the country. I figured it wasn't the case, but thought I'd ask just in case.

Thanks for your response.
nelsona
Posts: 18314
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: Would Deferred Commissions Pass Permanent Establishment Test?

Post by nelsona »

Permanent establishment would only apply to self-employment income. This sounds like employment income.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
lightoasis
Posts: 6
Joined: Fri Jan 17, 2020 12:07 pm

Re: Would Deferred Commissions Pass Permanent Establishment Test?

Post by lightoasis »

nelsona wrote:
> Permanent establishment would only apply to self-employment income. This
> sounds like employment income.

No, sorry, it's self-employment income. I am a self-employed sales representative.
nelsona
Posts: 18314
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: Would Deferred Commissions Pass Permanent Establishment Test?

Post by nelsona »

Then, indeed this would be self-employment income, not subject to tax in Canada, once you are non-resident.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
lightoasis
Posts: 6
Joined: Fri Jan 17, 2020 12:07 pm

Re: Would Deferred Commissions Pass Permanent Establishment Test?

Post by lightoasis »

nelsona wrote:
> Then, indeed this would be self-employment income, not subject to tax in
> Canada, once you are non-resident.

How do you think the CRA would view me collecting HST on the commissions and paying those back but then not paying income tax?
nelsona
Posts: 18314
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: Would Deferred Commissions Pass Permanent Establishment Test?

Post by nelsona »

Even US firms dealing with Cdns sometimes have to remit HST. Shouldn't be a problem.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
lightoasis
Posts: 6
Joined: Fri Jan 17, 2020 12:07 pm

Re: Would Deferred Commissions Pass Permanent Establishment Test?

Post by lightoasis »

Ok, thanks.

Last question - does it make a difference if the transactions are related to real estate? I had one person note "Your commission income was earned from the sale of Taxable Canadian Property and further it was earned from your business when you did have a Permanent Establishment in Canada."

Is the test for income being taxable when I EARNED it? Or does the test change in this case because the service I dealt with was physical property?
nelsona
Posts: 18314
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: Would Deferred Commissions Pass Permanent Establishment Test?

Post by nelsona »

it would be nice to bring all this information to the table in your first post rather that in drips and drabs. I guess you an go with the answer from the person to whom you gave most accurate information.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
lightoasis
Posts: 6
Joined: Fri Jan 17, 2020 12:07 pm

Re: Would Deferred Commissions Pass Permanent Establishment Test?

Post by lightoasis »

I apologize, I wasn't aware that the sale of property affected the question. This is new territory for me which is why I came to the forum. Thank you for taking the time to answer.
Post Reply