Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
Whether the administrative policy regarding withholding requirement of non-cash taxable benefits would be extended to withholding of Part XIII tax where there is no actual payment
Position:
No
Reasons:
Withholding under section 153 is merely a tax instalment while withholding under 215 is a final tax; section 212 clearly applies where an amount is "credited" (i.e. not only "paid").
November 4, 1997
Non-Resident Assessing and International Section Withholding Division S. Leung International Tax Directorate 957-2115
Attention: Natalie Stibernik 971841
Request for Waiving Withholding Tax
Further to our telephone conversation (Stibernik/Leung) of October 28, 1997, we enclose the attached facsimile from Ruth Aucoin of the Shawinigan-Sud Tax Centre for your reply as the issue relates to administrative policy on whether withholding tax should be waived on payments to a non-resident in the situation outlined in the client's letter.
Our reaction to the issue is that that situation can be distinguished from the situation referred to in the comments made by the Department in the 1983 Canadian Tax Foundation Conference with respect to the withholding requirement of certain taxable benefits. The latter situation deals with Part I tax withholding which is merely a tax instalment of Part I tax while the situation outlined in your letter involves a tax under Part XIII of the Act which is a final tax. The waiving of the withholding requirement under Part I would not affect the Part I tax liability and the requirement that the taxpayer has to file an income tax return. However, the waiving of the withholding of the tax under Part XIII of the Act would generally result in an exemption of Part XIII tax and the non-resident taxpayer does not need to file any tax return in Canada.1 Because of the above, our view is that the administrative policy with respect to the waiving of the withholding requirement for non-cash taxable benefits when an accompanying cash payment is not made should not be extended to the withholding requirement of Part XIII tax. Note that section 212 of the Act clearly applies to a situation where an amount is merely credited (that is, no cash payment is made). From our brief telephone conversation, it appears that you agree with our view expressed above.
The client commented that if the withholding tax is not recoverable, it would result in taxes being paid on interest payments made by the taxpayer to himself and, in his opinion, it would be unfair and would result in undue hardship. It should be noted that, as outlined in our file #9308235 mentioned in his letter, while it may be arguable that there is economic double taxation (i.e., two different persons are taxable in respect of the same income), the Act only provides relief in the case of double taxation of the same income in the hands of the same individual. In the situation outlined in the client's letter, the trust and the income beneficiary are two different taxpayers and Part XIII tax is payable by the trust on the interest income earned from the beneficiary and Part I tax is payable by the beneficiary on the income distributed by the trust.
for Director
Reorganizations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
ENDNOTES
1 Of course, when the trust makes a distribution to the Canadian resident taxpayer, the taxpayer has to include the income from the trust in his tax return filed under Part I of the Act, but that is a separate issue.