Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: Whether a non-resident person can file a Canadian income tax return under Part I in order to be refunded Part XIII tax withheld at source on a payment made under an RESP.
Position: Educational assistance payments made from an RESP to a non-resident person are subject to a 25% withholding tax under Part XIII of the Income Tax Act, by virtue of paragraph 212(1)(r). Exceptions are provided to non-residents who are attending a Canadian university and other individuals who are deemed to be employed in Canada pursuant to subsection 115(2). The income tax paid pursuant to the application of paragraph 212(1)(r) constitutes a final and non-refundable tax, and a Canadian income tax return cannot be filed by the non-resident taxpayer in order to be refunded Part XIII tax withheld at source.
Reasons: No election under section 217 can be made with respect to amounts paid or credited in accordance with the provisions of paragraph 212(1)(r).
XXXXXXXXXX
Marie-Claude Routhier,
LL.B., D.D.N., M. Fisc.
2013-050464
June 3, 2014
Dear XXXXXXXXXX,
Re: Registered Education Savings Plan and payments to a non-resident beneficiary
We are writing in reply to your letter received on September 12, 2013 wherein you requested our views as to whether a non-resident person can file a Canadian income tax return under Part I in order to be refunded Part XIII tax withheld at source on a payment made under a Registered Education Savings Plan ("RESP").
This technical interpretation provides general comments about the provisions of the Income Tax Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. This Information Circular and other CRA publications can be accessed on the internet at http://www.cra-arc.gc.ca/formspubs/menu-e.html. Notwithstanding the foregoing, we are prepared to provide the following comments that may be of assistance.
Unless otherwise stated, all references to a statute are references to the provisions of the Income Tax Act, R.S.C. 1985 c.1 (5th Supp.) as amended to the date hereof (the "Act"), and every reference herein to a Part, section, subsection, paragraph or subparagraph is a reference to the relevant provisions of the Act.
Our comments
Where a non-resident person is employed in Canada, carries on a business in Canada or disposes of a taxable Canadian property, a Canadian income tax shall be paid under Part I of the Act on his or her taxable income earned in Canada for the year, but only as required by subsection 2(3) and section 115.
According to paragraph 212(1)(r), every non-resident person must pay a Canadian income tax of 25% under Part XIII of the Act on every amount that a person resident in Canada pays or credits to him or her as payment of or as a portion of an RESP, to the extent that the payment:
- is required by paragraph 56(1)(q) to be included in computing the non-resident person's income under Part I for a taxation year; and
- is not required to be included in computing the non-resident person's taxable income or taxable income earned in Canada for the year.
Pursuant to paragraph 56(1)(q) and subsection 146.1(7), educational assistance payments (as defined in paragraph 146.1(1)(b)) are required to be included in the income of a taxpayer who is or was a beneficiary under a Canadian RESP. Such amounts are, however, not required to be included in computing the taxable income or taxable income earned in Canada for the year of a non-resident, as per subsection 2(3) and section 115.
Consequently, educational assistance payments made to a non-resident person are subject to a 25% withholding tax by virtue of paragraph 212(1)(r). The promoter of the plan must withhold the amount of Part XIII tax from the payments, pay the net amount to the non-resident beneficiary and remit the withholding tax to the Receiver General on behalf of the non-resident person. Exceptions are provided to non-residents who are attending a Canadian university and other individuals who are deemed to be employed in Canada pursuant to subsection 115(2). In these particular cases, payments from RESPs are subject to tax at graduated rates under Part I of the Act.
Where a non-resident person subject to paragraph 212(1)(r) receives educational assistance payments from an RESP, that person cannot file a Canadian income tax return under Part I of the Act with respect to the payments. The income tax paid pursuant to paragraph 212(1)(r) constitutes a final and non-refundable tax, and an election under section 217 cannot be made by the non-resident taxpayer in order to be refunded Part XIII tax withheld at source. In fact, section 217 only applies to payments subject to paragraphs 212(1)(h), (j) to (m) or (q).
When payments are from an RESP which is a trust, the applicable Part XIII tax rate may be reduced pursuant to the applicable tax convention. For example, the Article XXII of the Canada-U.S. Tax Convention reduces the income tax rate applicable to Canadian trust distributions to 15%, in certain circumstances. The question of whether the application of a tax convention would result in a reduction of Part XIII withholding tax is a question of fact that can only be resolved after an examination of all facts and circumstances surrounding the relevant situation.
We trust that we have been of some assistance.
Yours truly,
Randy Hewlett
Director
International Division
Income Tax Rulings Directorate
Legislative Policy & Regulatory Affairs Branch
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