Local tax on business in Canada

[rolfknudsen]

Hello

We are a small art/design Studio based in London, UK doing two art-commissions in Canada.
One is in Toronto for a commercial client and one is for Surrey council i.e a public body.

The Surrey commission is causing us problems tax-wise:

We will receive the full budget available. 20% of this is our fee and 80% will go to fabrication. Fabrication will be done by a Canadian firm.
The client has made us get a business number in Canada and we have been filling out a waiver form for the 80% going to fabrication so this is not taxed, but this is where nothing makes sense.

We are a UK based Limited company (incorporated in the UK) receiving money to carry out design work. We also receive and manage the fabrication fee. We will engage a Canada based fabricator that then of course will sort out taxes there by themselves (Issue here is VAT, but our understanding from our UK based accountant is that this is zero rated). The Canadian tax authorities say that we will be taxed on the 80% amount because the work is carried out in Canada, but we are a UK based company buying a service in Canada?????
The 20% fee will not be taxed in Canada as the work is being carried out in the UK.

To me it seems like we are being treated as a Canada based company, but we are a UK based company receiving funds here and hiring fabricators abroad. We have been told by our contact with the Canadian Tax Authorities that we are to submit Canadian tax returns for both the business and private returns for the partners in the company. This makes no sense as we are already answering to the UK Tax authorities???

Can anyone help clarify??

Best wishes

Rolf

[Generix]

Sorry I couldn't follow the supply chains at all?!

What are you buying, and from whom (based where).

What are you selling, to whom (based where).

If any goods are involved please also state where the goods move to/from as part of any purchase/sale you make.