23 November 2001 Internal T.I. 2001-0094157 - non-reseident shareholder

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 CCRA.

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

Principal Issues: Does a non-resident shareholder who receives a benefit from a Canadian corporation have to include an amount in income under subsection 15(1) in respect of the benefit?

Position: No, since not subject to tax under Part I by virtue of subsection 2(3) and 214(3)

Reasons:

									November 23, 2001
       Excise and GST/HST Rulings Directorate
	                  						Reorganizations and
	      							Resources Division
D. A. Palamar
(613) 957-2127
        Attention:  Mr. J. Sitka 

									2001-009415

Application of Subsection 15(1) of the Income Tax Act (the "Act")

We are writing in response to your memorandum to us, received July 23, 2001, concerning the application of subsection 15(1) in respect of a non-resident shareholder benefit.

Section 173 of the Excise Tax Act ("ETA") deals with the amount of tax to be remitted for GST/HST purposes in respect of a supply that gives rise to a taxable benefit for income tax purposes. More specifically, you advise that one of the preconditions to the application of subsection 173(1) is that an amount in respect of the supply must be included in income under subsection 15(1) or one of several paragraphs of subsection 6(1) of the Act. You ask whether a non-resident of Canada who receives a benefit from a corporation, of which the non-resident is a shareholder, is required to include an amount in income in respect of the benefit.

Our Views

Subsection 2(3) of the Act provides that only non-resident persons who were employed in Canada, carried on business in Canada or disposed of a taxable Canadian property are subject to income tax on their taxable income earned in Canada for the year. Consequently, a non-resident person who does not meet any of the three preconditions under subsection 2(3) is not subject to tax under Part I of the Act. Paragraph 215(3)(a) of the Act provides that where section 15 would, if Part I were applicable (emphasis added), require an amount to be included in computing a taxpayer's income, that amount is deemed to be paid to the non-resident as a dividend. Accordingly, we agree with you that non-residents not subject to tax in Canada by virtue of subsection 2(3) are not required to include any amounts in their income under subsection 15(1) of the Act.

Please call David Palamar at 957-2127 should you wish to discuss this further.

For Director
Reorganizations and Resources Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

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