| 19(1) | File No. 5-8377 |
| A.M. Larochelle | |
| (613) 957-2140 |
August 29, 1989
Dear Sirs:
Re: Subsections 157(1) and 135(3) of the Income Tax Act (the "Act")
This is in reply to your letter of July 14, 1989 in which you request a technical interpretation in respect of the interaction of the above subsections in the following hypothetical situation:
1. A partnership is a member of a cooperative and receives patronage dividends on a regular basis.
2. A Canadian controlled private corporation ("CCPC") is a member of the partnership.
3. The CCPC pays to the Receiver General, on a monthly basis instalments computed under subparagraph 157(1)(a)(iii) of the Act.
4. The co-operative withholds amounts from the patronage dividends as required by subsection 135(3) of the Act.
5. The CCPC carries on business as a member of the partnership.
Based on the above facts you have requested confirmation that the corporation's monthly instalment payments required under subsection 157(1) of the Act may be reduced by its share of tax withheld at source by the cooperative on the patronage dividends remitted to the Receiver General in accordance with subsection 135(3).
In our telephone conversation of August 15, 1989 you explained that the corporation's share of the tax withheld on these dividends amounts to a substantial sum of money and would in fact offset to a large extent the instalments required to be made by the corporation.
If you will refer to the enclosed 1989 Instalment Guide for corporations you will note at the bottom of the example on page 12 under the heading "Estimated Current Year Credits" that included therein is a deduction for Tax Withheld at Source (T4A, NR4, etc.). Also paragraph 4 of Information Circular 81-11R2 indicates clearly that source deductions can be used to reduce the tax otherwise payable by instalments.
We therefore confirm that the Corporation may treat its proportionate share of the source deductions remitted on its behalf in respect of the patronage dividends received by the partnership from the co-operative as a credit against the corporation's instalment payments otherwise payable.
If you have any further problems dealing with either individual or corporation instalment payments please direct your enquiry with full details to either the District Taxation Office in your area or Revenue Programs Division, Revenue Canada, Taxation, 875 Heron Road, Ottawa, K1A 0L8.
We trust our comments will be of assistance.
Yours truly,
for DirectorSmall Business and General DivisionSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch