26 May 2009 External T.I. 2009-0316841E5 F - Convention de retraite, crédit d'impôt
Principal Issues: [TaxInterpretations translation] Can an RCA trust deduct foreign tax paid on non-business income?
Position: (1) The trust cannot claim the foreign tax deduction under section 126 (Part I).
(2) However, in computing its income from property, subsections 20(11) and 20(12) may be applicable.
Reasons: 1) Pursuant to paragraph 149(1)(q.1), no Part I tax is payable in respect of an RCA trust.
(2) Income from property for purposes of the refundable tax under 207.5(1) is calculated according to the rules in Part I.
2009-031684 XXXXXXXXXX Catherine Ayotte, Notary, M.Fisc. May 26, 2009
Dear Madam,
Subject: Part XI.3 tax
This is further to your letter of March 31, 2009 requesting our opinion on the deductibility of foreign tax paid on non-business income in computing income for purposes of the Part XI.3 tax on retirement compensation arrangements.
Please note that unless otherwise indicated, all legislative references herein are to the provisions of the Income Tax Act (the "Act").
It appears to us that the situation described in your letter could constitute an actual situation involving taxpayers. As explained in Information Circular 70-6R5, it is not the Directorate's practice to comment on proposed transactions involving specific taxpayers otherwise than in the form of an advance income tax ruling. If your situation involves a specific taxpayer and a completed transaction, you should provide all relevant facts and documents to the appropriate Tax Services Office for its views. However, we are prepared to provide the following general comments.
Pursuant to paragraph 149(1)(q.1), no Part I tax is payable on the taxable income of an RCA trust. Consequently, such a trust cannot claim a deduction for tax paid for the year to the government of a foreign country pursuant to subsection 126(1) since this deduction can only be applied against Part I tax payable.
Subsection 207.7(1) requires an RCA trust to pay, for each taxation year of the trust, a refundable tax under Part XI.3 of the Act equal to the amount calculated under that subsection. For this purpose, the trust must include, inter alia, income from a property (determined without reference to paragraph 82(1)(b).) The computation of this income from property must be made in accordance with the provisions of Part I. For this purpose, the foreign tax deductions in subsections 20(11) and 20(12) may be applicable depending on the circumstances. More information concerning these subsections is available in Interpretation Bulletin IT-506: Foreign Income Taxes as a Deduction from Income which can be found on the Canada Revenue Agency's Internet site at the following address: http://www.cra-arc.gc.ca/E/pub/tp/it506/it506-e.html .
We hope that our comments are of assistance.
Best regards,
Ghislain Martineau
Manager
Financial Sector and Exempt Entities Section
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch.