9 January 2001 External T.I. 2000-0053445 - Non-resident treaty-exempt income

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: Whether income of a corporation which is exempt from tax in Canada under the provisions of an income tax treaty must be included in income and is then deducted under subparagraph 110(1)(f)(i).

Position: No

Reasons: Income of a corporation which is exempt from tax under Part I pursuant to an income tax treaty is excluded from income pursuant to paragraph 81(1)(a). No deduction under subparagraph 110(1)(f)(i) may be claimed in respect of an amount exempt under paragraph 81(1)(a).

XXXXXXXXXX 							2000-005344
								Olli Laurikainen
Attention:  XXXXXXXXXX 

January 9, 2001

Dear Sirs:

Re Subparagraph 150(1)(a)(ii) of the Income Tax Act (the "Act")

This is in reply to your letter requesting a general explanation of how the provisions of the Act would apply to a non-resident corporation which derives income or a capital gain which is sourced to Canada and which would be taxable under Part I of the Act were it not exempt from Part I tax in Canada pursuant to a bilateral income tax convention Canada has with another country (a "Tax Treaty").

Where a non-resident corporation derives income or a capital gain which is exempted from tax under Part I by a provision in a Tax Treaty, paragraph 81(1)(a) provides that the income or capital gain shall not be included in the income of the corporation for the taxation year. In such case, the non-resident corporation is nevertheless required to file a T2 return along with a Schedule 91 pursuant to subparagraph 150(1)(a)(ii) of the Act. The T2 return together with Schedule 91 is intended to provide the Canada Customs and Revenue Agency with the rationale for the non-resident corporation's treaty exemption claim.

The reference you make to a comment in the 1998 T2 Corporate Income Tax Guide, which suggests that a corporation would claim a deduction under subparagraph 110(1)(f)(i) of the Act for an amount included in income which is exempt under a Tax Treaty, is in our view an error. As you correctly point out, subparagraph 110(1)(f)(i) of the Act can only apply to individuals because treaty exempt income of corporations would be excluded from income pursuant to paragraph 81(1)(a) of the Act. If an amount is excluded pursuant to paragraph 81(1)(a) of the Act, no deduction in respect of such amount may be made under subparagraph 110(1)(f)(i) of the Act. We observe that the 1999 T2 Corporate Income Tax Guide does not contain such a comment but does contain instructions for the completion of a T2 return filed pursuant to subparagraph 150(1)(a)(ii) of the Act.

We trust this is the information you require.

Yours truly,

for Director
Reorganizations and International Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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