20 December 2005 External T.I. 2005-0145151E5 - Charitable Annuities held by a Non-Resident

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.

Principal Issues:

Whether a non-resident holder of a charitable annuity issued before December 21, 2002 in accordance with IT-111R2, Annuities Purchased from Charitable Organisations (cancelled), would be required by paragraph 212(1)(o) to pay income tax of 25% on annuity payments received after December 21, 2002.

Position:

No

Reasons:

Interpretation of paragraph 212(1)(o) and IT-111R2, Annuities Purchased from Charitable Organisations.

XXXXXXXXXX 								2005-014515

December 20, 2005

Dear XXXXXXXXXX:

Re: Charitable Annuities held by a Non-Resident

This letter is in response to your letter dated August 1, 2005, describing a situation where a Canadian registered charitable organisation (charity) entered into a charitable annuity contract, issued before December 21, 2002 with a non-resident donor, which met the requirements of our administrative policy as set out in Interpretation Bulletin IT-111R2, Annuities Purchased from Charitable Organizations, which has since been cancelled. You have requested our views on whether a non-resident holder of the charitable annuity issued before December 21, 2002 would be required to pay withholding tax in accordance with paragraph 212(1)(o) of the Income Tax Act (the "Act") on annuity payments that may be received after December 21, 2002.

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an Advance Income Tax Ruling request. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. As we have not reviewed the specific terms of the charitable annuity contracts, we will provide you with some general comments on the interpretation of paragraph 212(1)(o).

General Comments

Paragraph 212(1)(o) requires that every non-resident person pay an income tax of 25% of the amount paid or credited to him by a resident in Canada in respect of a payment under an annuity contract, to the extent that the payment, if the non-resident person had been resident in Canada throughout the year in which the payment was made, would be required to be included in computing the income of the non-resident person and would not be deductible in computing that income.

Where the charitable annuity was issued before December 21, 2002 and it met the requirements of IT-111R2, if the non-resident person had been resident in Canada throughout the year in which the payment was made no amount would be required to be included in his income that would not be deductible pursuant to paragraph 60(a) in computing that income. Therefore, annuity payments made pursuant to a charitable annuity contract which met the requirements of IT-111R2 and was issued before December 21, 2002 are not taxable pursuant to paragraph 212(1)(o).

While we hope that our comments will be of assistance to you, the comments referred to above are not binding on the Canada Revenue Agency.

Yours truly,

F. Lee Workman
Section Manager
Charitable and Financial Institution Sectors
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Policy and Legislation Branch