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: Where in the computation of Part I tax does the special credit in subsection 217(6) come in?
Position: After all of the additions to and deductions from Part I tax provided in Division E and E.1 of the Act.
Reasons: The credit in subsection 217(6) is computed using the amount of tax under Part I that would, but for subsection 217(6), be payable.
July 9, 2002
COMPLIANCE PROGRAMS BRANCH HEADQUARTERS
International Tax Directorate Income Tax Rulings
Non-Resident Operations Division Directorate
Attn: Robert Greene
2002-013960
S. E. Thomson
(613) 957-2122
Subsection 217(6) Special Credit
We are writing in response to your May 9, 2002 email regarding the credit in subsection 217(6) of the Income Tax Act. In particular, you would like to know where in the computation of Part I tax the subsection 217(6) credit comes in. The question comes to light with the repeal of the individual surtax in section 180.1 of the Act, and the subsequent modifications to Schedule 1 (the form used for the computation of Canadian federal tax included in the package 5013-G General Income Tax and Benefit Guide for Non-Residents and Deemed Residents of Canada).
Subsection 217(6) provides for a deduction in computing tax payable under Part I to a non-resident who makes an election under paragraph 217(2)(b). At the moment, Schedule 1 is structured so that the subsection 217(6) credit is taken before certain other adjustments to Part I tax, such as those provided in sections 120, 126, 127, etc. It was structured this way because of complexities caused by the section 180.1 calculation, and your directorate has a manual system in place to ensure that taxpayers pay the correct amount of tax. With the repeal of section 180.1, this override is no longer required, and Schedule 1 is being amended. You would like to know whether the subsection 217(6) credit should go before or after the other adjustments to Part I tax.
For example, subsection 120(1) (the "non-resident surtax") provides for an addition to tax otherwise payable under Part I. The term "tax otherwise payable under this Part" is defined in subsection 120(4), for purposes of section 120, as, inter alia, the amount that would be the individual's tax payable under Part I if Part I were read without reference to certain sections in Division E of the Act. Since the definition in subsection 120(4) does not carve out the credit in subsection 217(6), you question whether "tax otherwise payable under this Part" in section 120 is the amount of Part I tax before or after the subsection 217(6) credit.
In our view, in computing the tax payable under Part I, the deduction that is provided in subsection 217(6) should be made after all of the other adjustments provided for in Part I of the Act (e.g. Division E and E.1) since the subsection 217(6) credit is provided for within Part XIII of the Act. This interpretation can also be inferred from the mechanics of the formula for computing the subsection 217(6) credit. Variable A of the formula in subsection 217(6) is "the amount of tax under Part I that would, but for this subsection, be payable by the person for the year".
Due to the words "but for this subsection", it would be difficult to compute the 217(6) credit without first having performed all of the calculations in Part I. As a result, in the above example, the non-resident surtax would be added to Part I tax first, and then the subsection 217(6) credit would be applied to the result.
We trust that our comments have been helpful.
Olli Laurikainen
for Director
International & Trusts Division
Income Tax Rulings Directorate
.../cont'd
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