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 payer require a waiver under Regulation 805(2) in order to not deduct Part XIII withholding where the non-resident payee is carrying on business in Canada through a permanent establishment?
Position: Yes
Reasons: Previous opinions
Mr. John Crowley
Manager, Income Tax Appeals
Appeals Branch 2002-013768
25 Nicholas Street, 21st Floor T. Cook
Albion Tower
Ottawa ON K1A 0L5
June 19, 2002
Re: Part XIII Withholding, Regulation 802 & 805
Dear Mr. Crowley:
We are writing you in response to your memorandum of April 24, 2002, in which you asked for our views regarding the application of subsection 805(2) of the Income Tax Regulations (the "Regulations") in instances where a non-resident carries on a business in Canada through a permanent establishment. In the situation at hand a non-Canadian partnership (i.e. a non-resident person for purposes of Part XIII - refer to paragraph 212(13.1)(b) of the Income Tax Act (the "Act")) has been carrying on a business in Canada through a permanent establishment. During the year ended XXXXXXXXXX, a corporation resident in Canada (the "Taxpayer") acted as agent for the partnership and collected $XXXXXXXXXX on its behalf. The Taxpayer paid this amount into the account of the partnership with no deduction for Part XIII withholding. In XXXXXXXXXX, the Taxpayer was assessed pursuant to subsection 215(1) or (3), as the case may be, and subsection 215(6) for not withholding $XXXXXXXXXX as required by Part XIII of the Act. The partners have filed Part I tax returns for all relevant years on a timely basis, including the year ended XXXXXXXXXX; however, we understand that the Part XIII assessment was made before the Part I returns for the year ended XXXXXXXXXX were filed.
Your specific query is whether a person who makes a payment to a non-resident carrying on a business in Canada through a permanent establishment is required to deduct from that payment the appropriate Part XIII withholding amount unless a waiver is granted under subsection 805(2) of the Regulations. Your opinion is that the purpose of subsection 805(2) of the Regulations is solely to provide a degree of assurance to the payer that he or she is not required to withhold Part XIII tax from the payment. Where a waiver is not granted, the payer will be responsible for any Part XIII tax and penalties in situations where the non-resident is not eligible to file a Part I tax return. Conversely, this suggests that a payer would not be responsible for any tax or penalties where a non-resident is carrying on business in Canada through a permanent establishment, even if the non-resident fails to meet his or her filing obligations. In this particular instance, you intend to allow the Taxpayer's objection since the facts support the view that the partnership carried on a business in Canada through a permanent establishment during the relevant period.
You have cited Wright v. The Queen, 2001 D.T.C. 437 (T.C.C.) as support for your position. In that case, the taxpayer elected under subsection 216(1) of the Act and filed a return and paid tax under Part I of the Act "in lieu of" paying Part XIII tax. The issue before the Court was whether interest on the taxpayer's late payment should be calculated based on the Part I tax paid or the Part XIII tax amount. The decision in Wright turns on the interpretation of the wording of subsection 216(1) of the Act. The wording of subsection 216(1) differs significantly from the relevant portion of section 805 of the Regulations, and we would distinguish it on that basis. Additionally, we note that this is an informal procedure case and so has no value as a precedent pursuant to section 18.28 of the Tax Court of Canada Act.
We confirm that our position continues to be that unless a waiver is granted, a payer is required to deduct Part XIII withholding from payments made to a non-resident who is carrying on a business in Canada through a permanent establishment. Under subsection 805(2) of the Regulations, the Minister is granted discretion with respect to Part XIII withholding once she is satisfied that pursuant to subsection 805(1) of the Regulations, an amount is not taxable under Part XIII of the Act. If the aim of the provision were to only require Part XIII withholding where it is uncertain whether a permanent establishment exists in Canada, subsection 805(2) would have been drafted so as to make the grant of a waiver automatic once the Minister is satisfied that a permanent establishment exists. There may be situations where the collection of Part I tax from the non-resident is not certain and subsection 805(2) of the Regulations may play a useful role. In this regard, we note that subsection 216(4) of the Act specifically contemplates using Part XIII withholding as a means to secure payment where a non-resident has elected to be subject to Part I tax.
However, in this particular instance we concur with allowing the Taxpayer's objection since it appears that the partners have complied with all of their Part I obligations. We trust these comments are of assistance. If you have any queries or need further help, please do not hesitate to contact Ted Cook at 946-4165.
Yours truly,
Jim Wilson
For Director
International and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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