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 the distribution out of capital of a trust resident in Canada to a non-resident beneficiary will be subject to Part XIII withholding tax.
Position: Yes.
Reasons: In the generalized scenario, it is reasonable to conclude that the distribution from the trust to its beneficiary was derived from the capital dividend received by the trust in the previous year.
XXXXXXXXXX J.D. Brooks
2003-002069
July 17, 2003
Dear XXXXXXXXXX:
This is in reply to your facsimile of May 26, 2003, in which you requested our views on the application of subparagraph 212(1)(c)(ii) of the Income Tax Act (the "Act") to a specific scenario which you presented.
Confirmation of the tax implications of proposed transactions is given only in reply to an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5. While we are unable to comment on the particular situation described in your letter, the following general comments may be of assistance to you.
To generalize the scenario you presented, a trust receives a capital dividend one year as described in subsection 83(2) of the Act and accordingly no part of the dividend is included in the trust's income. In the following year, the trust makes a distribution of an amount equal to the amount of the capital dividend, to its sole beneficiary who is a non-resident of Canada. You queried whether the distribution would be subject to withholding tax pursuant to paragraph 212(1)(c) of the Act.
As you noted, subsection 212(11) of the Act states that an amount paid by a trust to a beneficiary is deemed, for the purpose of paragraph 212(1)(c), to have been paid as income of the trust. Withholding tax will apply pursuant to paragraph 212(1)(c) if either subparagraph 212(1)(c)(i) or (ii) applies. The relevant subparagraph for the generalized scenario is (ii), and it applies where it can reasonably be considered that the distribution is derived from an amount received by the trust as a capital dividend on a share of a corporation resident in Canada. Thus, in the scenario described, withholding tax would be required.
We trust that this information will be useful to you.
Yours truly,
Theresa Murphy
Section Manager
for Division Director
International and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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