Principal Issues: [TaxInterpretations translation] Is a payment made pursuant to an allocation in proportion to patronage (a "patronage dividend") to a partnership subject to withholding under subsection 135(3) of the Act?
Position: The withholding of tax must be made taking into account the status of each member of the partnership.
Reasons: Wording of the Act
XXXXXXXXXX 2005-011737 Michel Lambert April 29, 2005
Dear Sir,
Subject: Patronage refunds paid to a partnership
This is in response to your letter of February 17, 2005, asking whether a payment made pursuant to an allocation in proportion to patronage (a "patronage dividend") to a partnership is subject to withholding under subsection 135(3) of the Act.
Unless otherwise indicated, all statutory references herein are to provisions of the Income Tax Act (the "Act").
As stated in paragraph 22 of Information Circular 70-6R5 dated May 17, 2002, it is our practice not to issue written opinions on proposed transactions otherwise than through advance rulings. Furthermore, when it comes to determining whether a completed transaction has received appropriate tax treatment, that determination is made first by our Tax Services Offices as a result of their review of all facts and documents, which is usually performed as part of an audit engagement. However, we can offer the following general comments that we hope may be helpful to you. These comments may not, however, apply to your particular situation in certain circumstances
Subsection 135(3) provides that where a taxpayer pays a patronage dividend to a person resident in Canada who is not exempt from tax under section 149, the taxpayer must withhold tax in the manner provided in that subsection. Where a patronage dividend is paid to a partnership, it is our view that withholding tax should be made taking into account the status of each member of the partnership.
As stated in Information Circular 70-6R5, this opinion is not an advance income tax ruling and is not binding.
Best regards,
Section Manager
for the Director of the Directorate
Financial Industries Division
Income Tax Rulings Directorate
Policy and Planning Branch