Principal Issues: Is there any obligation for a trust resident in Canada to file forms NR4 and NR4SUM with respect to a distribution of capital to a non-resident capital beneficiary?
Position: Yes.
Reasons: Subsection 212(11) of the Act deems all such distributions to be income. Therefore subsection 202(1) of the Regulations requires such amounts to be reported, regardless of whether the amounts are taxable under Part XIII. In addition, the Minister has not waived this requirement
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XXXXXXXXXX 2015-060820 Hugo Gravel, LL.B., D.Fisc. December 22, 2016
XXXXXXXXXX:
Filing Form NR4 - distribution of capital of trust
This is in response to your letter dated July 16, 2015 asking us to provide our interpretation of the obligation of a trust resident in Canada to file Form NR4 - Statement of Amounts Paid or Credited to Non-Residents of Canada, ("NR4") where it makes a capital distribution to one of its capital beneficiaries who is a non-resident of Canada.
We apologize for the delay in responding to your request.
Our comments
This technical interpretation provides general comments on the provisions of the Income Tax Act (the “Act”) and the Income Tax Regulations (the “ITR”). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R7, Advance Income Tax Rulings and Technical Interpretations.
Pursuant to subsection 202(1) of the ITR, a person resident in Canada who pays, or is deemed under Part XIII of the Act to pay, an amount to a non-resident person as income of the trust, is required to file an information return on Form NR4.
Subsection 212(11) of the Act deems any amount paid by a trust to, or credited to, one of its beneficiaries to be paid to the beneficiary as income of the trust regardless of the source from which the trust derived it. This ensures that distributions of capital of a trust are deemed to be distributions of income for the purposes of Part XIII. However, only distributions of capital described in subparagraph 212(1)(c)(ii) of the Act will be subject to Part XIII tax, i.e., capital dividends received by a trust from a corporation resident in Canada.
Thus, to the extent that distribution of capital of the trust are not derived from capital dividends paid to the trust, we would be of the view that such distributions would not be subject to Part XIII tax. However, we are of the view that any distribution of capital in the trust, regardless of whether it is described in subparagraph 212(1)(c)(ii), must be reported on an NR4 form. In such circumstances, the amount should be coded "S" in box 18 or 28, as the case may be, to indicate that it is exempt. It should also be noted that this obligation is not subject to a waiver under subsection 220(2.1).
We hope that these comments will be of assistance.
Dave Beaulne, CPA, CA
Section Manager
for the Director
International Operations Division
Income Tax Rulings Directorate
Legislative Policy
and Regulatory Affairs Branch