9 May 2001 External T.I. 2000-0033775 - UK TAX CONVENTION DIVIDENDS

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: Tax treatment of income derived from U.K. personal equity plans (PEP), individual savings accounts (ISA), and endowment.

Position: None

Reasons: Unable to provide position in the absence of detailed facts only general information.

XXXXXXXXXX 						2000-003377

May 9, 2001

Dear XXXXXXXXXX:

Re. Canada-UK Tax Treaty

This is in reply to your letter dated June 21, 2000, wherein you requested our comments in respect of the taxation of the income earned on investments held in a U.K. Personal Equity Plan ("PEP"), Individual Savings Account ("ISA"), and an endowment. We apologize for the lengthy delay in responding to your letter.

The particular circumstances described in your letter appear to be a factual situation involving a specific taxpayer. As explained in Information Circular 70-6R4 dated January 29, 2001, it is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an income tax ruling. Should your situation involve specific taxpayers and completed transactions, you should submit all relevant facts and documentation to the appropriate Tax Services Office for their views. However, we can offer the following general comments that may be of assistance.

Based on the limited information available, we understand that through both PEPs and ISAs individuals may hold a limited amount of interests in equities, unit trusts, cash and other similar investments and that any income or capital gains derived therefrom are completely tax exempt in the U.K. The material you provided indicates that income from investments in PEPs and ISAs is usually paid as dividends and may also take the form of interest payments. Your letter assumes that the income derived from these plans would be treated as dividends. You are of the view that, since the income earned on the investments held within a PEP or an ISA is exempt from taxes in the U.K. the income earned on such investments should not be taxed in Canada on the basis that your client is entitled to a tax credit in respect of dividends pursuant to Article X(3)(b) of the Canada-United Kingdom Income Tax Convention (1978).

As you are aware, Canadian residents must report worldwide income, including income earned on investments held in the U.K. Income received in respect of interests in PEPS and ISAs may not necessarily be treated as dividends in Canada. In order to determine whether receipt of income from PEPs and ISAs may be subject to special tax treatment under the Canada-United-Kingdom Income Tax Convention (1978), we would have to review the structure of each PEP or ISA, the particular investments held therein, and any information slips related thereto. Further, in the absence of specific facts relating to the endowment, we cannot comment as to the possible tax treatment of any income received therefrom.

We trust the above comments will be of assistance.

Yours truly,

F. Lee Workman
Manager
Financial Institutions Section
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch