Provincial Income Allocation Newsletter

Gross Revenue – Leasing Revenue

No. 3
February 2010

This newsletter identifies the approach to be used for allocating leasing revenue, from non-financial leases, in order to avoid double taxation.

The Canada Revenue Agency has determined that leasing revenue should be allocated in the following manner:

• Revenue should be allocated to the permanent establishment (PE) in the jurisdiction in which the leased property is being used, where the taxpayer has reasonable knowledge of such information.
• If the taxpayer does not have reasonable knowledge of where the property is being used, or the taxpayer does not have a PE in the jurisdiction described above, the revenue should be allocated to the PE to which the person negotiating the lease may reasonably be regarded as being attached.

Regarding reasonable knowledge, the taxpayer may have knowledge of the location where the leased property is being used simply by virtue of the relationship with the client. This alone is not necessarily the prerequisite for reasonable knowledge. Gross revenue should be allocated to the jurisdiction where the leased property is being used only if the taxpayer needs to have this information because of the commercial or business relationship with the client, and only if the taxpayer has a PE in that jurisdiction.

Reference
Interpretation Bulletin IT-177R2, Permanent Establishment of a Corporation in a Province