DM'S OFFICE (2) M93-3845T ADM'S OFFICE (3) RETURN TO RULINGS, ROOM 303, MET. BLDG.
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Dear XXXXXXXXXX
The Honourable Otto Jelinek, former Minister of National Revenue, has asked me to respond to your letter of June 9, 1993, concerning the position expressed in paragraph 4 of Interpretation Bulletin IT-372R, and the Department's opinion as expressed in the letter of May 18, 1993.
The law requires that the U.S. trust be recognized as a person and the beneficiary as another person, separate from the U.S. trust. Payments, such as dividends, made by a Canadian corporation to the non- resident trust are subject to tax under Part XIII of the Act. An amount is withheld on account of this liability by the Canadian corporation when it pays the dividends. The beneficiary of the trust, as a resident of Canada, is required to include the distribution made by the trust in the calculation of the income that is subject to tax in Canada. Because the taxes withheld are in respect of the tax liability of the non-resident trust they may not be applied against the tax liability of the Canadian resident beneficiary.
In your previous correspondence you indicated that you directed the trust to acquire Canadian assets. It is possible that the trust in question may, in fact, be a resident of Canada, and in this regard I refer you to the comments in paragraph 2 of Interpretation Bulletin IT- 447, a copy of which is enclosed for your information.
In the event the trust is a Canadian resident trust, the Part XIII tax would be refunded to the trust since Part XIII tax does not apply to a payment made by a Canadian corporation to a trust resident in Canada. If you wish to explore the residency issue in more detail I would suggest you forward a copy of the trust documentation to:
Ms Carole Gouin Toussaint Director General International Tax Programs Directorate Room 700 123 Slater Street Ottawa, Ontario K1A OL8
I trust this action meets with your approval.
Yours sincerely,
Pierre Gravelle, Q.C.
c.c. Carole Gouin Toussaint
M93-3845T