CRA reassessed a Canadian-resident discretionary personal trust to deny the s. 104(6) deduction it claimed for income it had distributed to a Barbados-resident beneficiary, on the grounds that there had been an income inclusion to that beneficiary under s. 105(1) rather than s. 104(13). On the basis that there was no Part XIII tax on a s. 105(1) benefit, the beneficiary applied, beyond the two-year period under s. 227(6) for doing so, for a refund of the Part XIII tax that had been withheld on the distributions.
After finding that the refund application should be denied for being outside the two-year period, the Directorate stated:
Subsection 227(10.1) provides the Minister with the discretion to “at any time assess” any amount payable under Part XIII by a non-resident. In general terms, it authorizes the Minister to assess when Part XIII has not been properly withheld and remitted. In that regard, an assessment under subsection 227(10.1) is not authorized if there is no Part XIII amount payable to assess, as would be the case if the payments made to the non-resident were not subject to section 212. Where there is no Part XIII tax liability, it is our view that there is no authority to assess under subsection 227(10.1) and no ability to assess any related Part XIII penalties for failure to remit or deduct such tax.
Furthermore, in our view, an assessment made under subsection 227(10.1) where the two-year limitation requirement of subsection 227(6) has not been met would allow the non-resident to circumvent the two-year limitation requirement… .