A corporation with a June 30 taxation year end makes monthly payments of interest on a loan from its non-resident parent, and remits withholding tax to CRA each month. In its annual return it recognizes that by virtue of s. 18(4) the interest is non-deductible and is deemed to be a dividend that is subject to a Treaty-reduced rate of withholding. Given that the NR-7 form permits the recovery of such excess withholding only on the basis of the calendar year, what procedure should be followed in order to recover the excess withholding tax? After discussing the s. 214(16)(b) designation, CRA stated:
[B]y virtue of the application of paragraph 214(16)(a) and any designation under paragraph 214(16)(b), the non-resident parent could therefore file, no later than two years after the end of each calendar year in which overpayments were made to the Receiver General, a Form NR7-R to recover these amounts, unless these amounts are applied … against amounts owing to or about to become due to Her Majesty in Right of Canada.
However, prior to so stating, CRA also noted that in its annual return the corporation could make s. 214(16)(b) designations as to which of the interest payments were deemed to be dividends, and stated that s. 214(16)(b) thus allows:
for flexibility and certainty with respect to the corporation’s withholding and payment obligations in respect of the amounts of such deemed dividends during a taxation year.