2 June 1989 Income Tax Severed Letter AC57615 - Withholding Tax on Dividends from a Canadian Corporation

5-7615
                                            R.C. O'Byrne

19(1)                                       613-957-2126

June 2, 1989

19(1)

Re: Withholding tax on dividends from a Canadian corporation

This is in reply to your letter of February 9, 1989 in which you asked a question about Canadian withholding tax deducted from dividends paid by a Canadian company.

                            24(1)

The Canadian Income Tax Act (the "Act") requires that a 25% withholding tax be deducted from taxable dividends that are paid or credited by a Canadian company (such as 24(1)) to a non-resident.

This means that the 25% tax must be withheld if the funds from the dividends

1) are paid to the non-resident, or 2) credited to the non-resident (e.g. recorded in the paying corporation's records as being payable to the non- resident).

In your situation the 24(1) dividends would be considered paid to you if they

1)are sent to you in 19(1) or 2)are kept in Canada for your use.

As they are considered paid to you in either of these situations the 25% tax would have to be withheld. In addition you would not be exempted from paying withholding tax on your 24(1) dividends if you dept the money from the dividends in Canada and reinvested it in more 24(1) shares.

We trust this will be of assistance to you.

Yours truly,

for Director Reorganization and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch