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SUBJECT: PERSONAL TAXATION

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On January 1^st. 1989, the X Company was incorporated in Seattle, Washington, U.S.A. The Company was in the business of manufacturing and selling womens beauty product. Production and warehousing facilities were located across the United States. The Companys Head Office was located in Seattle where all the management meetings were held and decisions relating to the operating, financing and investments were conducted. All the Companys books were held at the Head Office in Seattle.

In 2018, the Companys management made a decision to extend its marketing and selling activities in Vancouver, B.C., Canada. For this purpose, they rented office space in downtown Vancouver and sought to solicit orders for their products from the Canadian market. A Canadian individual was hired for V.P. of marketing together with several Canadian salespersons located in various regions of Canada. In addition two office secretaries and two data entry clerks were hired to manage the office in Vancouver.

The Company advertised its products through Canadian media and salespersons in various regions of Canada took orders which had to be approved by the Head Office in Seattle. Once the orders were approved the products were shipped directly to the customers from the U.S.

The invoicing was done by the office clerks in Vancouver and the payments were deposited in the Royal Bank of Canada where a business account was set up. All expenses incurred including salaries and commissions were paid by the office clerks in Vancouver after the Canadian V..P. of Sales and one of the office clerks had signed the cheques. One of the office clerks did the monthly bank reconciliation and after keeping $10,000 on hand for miscellaneous expenses the balance of the cash balance was remitted to the Seattle Head Office.

At the end of 2021, the Company determined that the revenue generated in Canada was not sufficient to warrant the expenses incurred to maintain the offices together with the secretaries and clerks in Vancouver. The Company streamlined the business keeping the V.P. of Sales, the salespersons and one clerical/secretarial person. All other employees were terminated. The V.P. of Sales and the clerical person were required to conduct business from their homes in Toronto. A business telephone number together with an answering services to take orders was set up at the home of the V.P. Sales. All salespersons were given business cards with the Companys name and this telephone number where orders can be placed.

Required:-Evaluate in details the residency issue alternatives of this case and their tax consequeces.