24 May 2002 External T.I. 2002-0132815 - Reg 805 Non-resident withholding

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: Whether a waiver is required for not withholding tax under Part XIII of the Act where the amount on which Part XIII tax is otherwise exigible can reasonably be attributed to a permanent establishment in Canada through which a non-resident person carries on business?

Position: Yes.

Reasons: Subsection 805(2) of the Income Tax Regulations is there for a purpose and the fact that the Minister may permit non-withholding where he is satisfied that the amount is not taxable under Part XIII of the Act implies that a waiver is required.

XXXXXXXXXX
2002-013281
S. Leung
May 24, 2002

Dear XXXXXXXXXX:

Re: Non-Resident Withholding Tax
Section 805 of the Income Tax Regulations (the "Regulations")

We are writing in response to your letter of August 30, 2001 to International Tax Services Office who forwarded your letter to us for reply. In your letter you requested our view as to whether permission from the Minister is required to not withhold an amount as described in subsection 805(2) of the Regulations when the exception described in paragraph 805(1)(a) of the Regulations is met.

It is your view that a Canadian resident can make a payment to a non-resident person without Part XIII withholding taxes and without receiving permission from the Canada Customs and Revenue Agency (the "CCRA") prior to making the payment where he can make a case that the non-resident person carried on business through a permanent establishment in Canada and the payment may reasonably be attributed to that business. Your reasoning is as follows:

1. Since subsections 805(1) and 805(2) of the Regulations are not connected by the word "and", it appears that one of the subsections may apply without the other.

2. Since the exception described in subsection 805(1) of the Regulations is met, the non-resident person is not taxable under Part XIII of the Income Tax Act (the "Act") on the amount otherwise taxable under that Part. As a result, section 215 of the Act would not apply. Hence, the payer would not be liable for the Part XIII tax not remitted nor would he be subject to the penalty provisions for failure to withhold tax on such amount.

Our Comments

We do not agree with your view that subsections 805(1) and 805(2) of the Regulations are independent of each other when the word "and" is not placed between these two subsections to connect them. First, we found that the word "and" is never used to join two subsections either in the Act or in the Regulations. This may imply that each subsection is independent of the other in that each deals with a different subject matter but it does not necessarily mean there is no interconnection among the subsections, otherwise they would not have been put together under the same section and each subsection would itself have become a section. Secondly, in the case at hand, the words "under subsection (1) an amount is not taxable under Part XIII of the Act" in subsection 805(2) have a lot to do with subsection 805(1) of the Regulations for those words denote the subject matter of the latter subsection. In other words, it is clear that subsection 805(2) of the Regulations was drafted with the subject matter of subsection 805(1) in mind and it can be said that the subject matter of the former serves as a sequence to the latter.

If subsection 805(1) of the Regulations does indeed provide an exception from Part XIII tax that resident payers can rely on without applying for a waiver as was argued by you above and that subsection 215 of the Act would not apply because there is no liability for Part XIII tax, subsection 805(2) of the Regulations would be meaningless and superfluous. However, a basic approach to interpreting statutes is that every word in a statute has a meaning and every provision of a statute is purposeful. The fact that the Governor in Council enacted the provision of subsection 805(2) of the Regulations seems to tell us that for certain reasons the payer is not automatically released from the obligation of withholding under Part XIII of the Act even though the amount on which the tax is withheld falls into one of the exceptions described in subsection 805(1) of the Regulations, unless the Minister gives permission to the payer to not withhold. One of the reasons is that there may be situations where the collection of Part I tax from the non-resident payee is in jeopardy.

In addition, it should be noted that the word "may" used in subsection 805(2) of the Regulations indicates that the Minister is given the power and the choice of whether to grant a permission to the payer to not withhold the Part XIII tax. We would suggest that the word "may" in that subsection makes it fairly clear as to the statutory intent since the opening words of that subsection begin with the situation where the Minister is satisfied that Part XIII does not apply.

In summary, it is our position that, pursuant to subsection 805(2) of the Regulations, a waiver is required before the payer is released from the obligation of withholding Part XIII tax.

This position is based on reading subsections 805(1) and 805(2) of the Regulations together and looking at the object of the withholding provisions generally, as well as the purposefulness of subsection 805(2) in the Regulations.

Yours truly,

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

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