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:
It should be noted that we do not consider a re-appropriation of the amount of excess Part XIII tax under section 221.2 to be available to the non-resident in this situation. Unless NR Beneficiary will have a tax liability from an amount payable arising from a (different) source described in section 221.2, NR Beneficiary will not have a debt that “is or may become payable” for the purposes of that provision due to the timing of Trust’s withholding requirement under section 215. More importantly, a re-appropriation of the excess Part XIII tax requested in subsection 227(6) to a debt of the non-resident beneficiary that is described in section 221.2, if one existed, would be contrary to the restrictions imposed by subsection 227(6) and therefore cannot be allowed.