Principal Issues: [Tax Interpretations translation] Considering that the addition of new paragraph 212(9)(d) is retroactive, how will a corporation be able to recover excess Part XIII tax amounts paid under paragraph 212(1)(c)?
Position: No position taken.
Reasons: Question currently under study by the CRA.
FEDERAL TAX ROUNDTABLE
APFF CONFERENCE 2010
Question 28 - Reinsurance Trust
The Superintendent of Financial Institutions of Canada may require a non-resident reinsurer of Canadian risks to place property in trust in Canada (a "Reinsurance Trust").
The Reinsurance Trust may earn dividend or interest income, which is payable to non-residents of Canada.
It was proposed to amend subsection 212(9) to add a new exemption to the requirement for a Canadian trust to make source deductions under Part XIII. Specifically, proposed paragraph 212(9)(d) provides that dividends or interest distributed to beneficiaries of a Reinsurance Trust will not be subject to Part XIII tax in the event that they would not have been subject to Canadian tax if they had been paid directly to non-residents (the "proposed measure (footnote 1)").
The proposed measure would be retroactive to the year 2000.
Questions to the CRA
a) Since the proposed measure will be retroactive to the year 2000, how will a corporation be able to recover the amounts paid under paragraph 212(1)(c) on the interest and dividend amounts generated by the Reinsurance Trust and distributed to its beneficiaries?
b) Although subsection 227(6) provides a procedure for recovering the amounts paid under those circumstances for the two years preceding the application, how will the corporation recover the amounts paid before the two years provided for in subsection 227(6)?
CRA Response
The Legislative Proposals published by the Minister of Finance on July 16, 2010 provide for the addition, after paragraph (c) of subsection 212(9), of the following:
(d) a dividend or interest is received by a trust created under a reinsurance trust agreement, to which the Superintendent of Financial Institutions is a party, established in accordance with guidelines issues by the Superintendent relating to reinsurance arrangements with unregistered insurers.
This is a new relief measure that provides for exemption from Part XIII in certain circumstances. This provision is intended to apply to amounts paid to, or credited to, non-residents after 2000.
The CRA's application of such a retroactive measure for the purposes of Part XIII appears to be limited by the application of subsections 227(6) and 227(7). In this regard, the CRA is exploring possible avenues for the implementation of this type of retroactive measure. The CRA is currently conducting consultations and plans to announce its position to APFF members as soon as it finishes its analysis.
Yannick Roulier
(613) 957-2134
October 8, 2010
2010-037350
FOOTNOTES
Due to our system requirements, footnotes contained in the original document are reproduced below:
1 Bill C-10