@Oregonian, would not the following steps accomplish what you need?
- Position your small layer appropriately over the background.
- Make a rectangular selection bounding the area of the desired final canvas.
- With your small layer still active, create a new, transparent layer (this transparent layer will be the same size as the canvas).
- Layer->Merge Down (your small layer will now extend to the boundaries of the selection).
- Image->Crop to Selection.
@Lylejk, after you perform an Edit->Paste, the "floating selection (pasted layer)" will have the same dimensions as whatever was in the clipboard, and the marching ants will indicate this boundary. Only the portion of the "floating selection (pasted layer)" which covers the original layer will be shown (the 'original layer' being the one that was active when the paste was performed). This behavior will be more apparent if you were to move or transform the floating selection (scale, rotate, sheer, etc).
If, at this point, you perform a "Layer->Layer Boundary Size..." then you are changing the boundary
of the floating selection (just as its boundary might be changed by a transform or move). This may or may not have an effect depending upon what you do next.
If you anchor the floating selection, it will be merged with the original layer;
cropped to the boundaries of the original layer. In this scenario, any increase of the boundary size that was performed on the floating selection will have no effect (which I presme was your point), and a decrease would only be noticeable if the floating selection has been resized to be less than the boundaries of the original layer (this would have been noticeable right after performing the resize, before anchoring).
If, instead of anchoring, you had created a new layer from the floating selection then the dimensions of that new layer will be the same as the floating selection's after whatever modifications (moving, transforming, resizing) have been performed.