30 January 2014 Internal T.I. 2012-0460181I7 - Application of paragraph 225.1(6)(b)

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 the Minister can rely on paragraph 225.1(6)(b) in order to commence collection actions against a non-resident where rental income is received by a non-resident from Canadian sources to which withholding is required by subsection 215(1), but for which no amount of tax was withheld or remitted?

Position: No, but the Minister may commence collection actions without delay against the payor.

Reasons: Paragraph 225.1(6)(b) provides that the collection restrictions in subsection 225.1(1) do not apply in situations where an amount is required to be deducted or withheld and remitted or paid under the Act or Regulations. Since subsection 215(1) requires a person who pays, credits or provides an amount on which a tax is payable under Part XIII to deduct or withhold from it the amount of tax and remit it to the Receiver General, paragraph 225.1(6)(b) of the Act would be applicable.
In the case of a non-resident recipient, the amounts are not amounts that the non-resident was required to withhold and deduct. Therefore, the exemption from the collection restrictions in paragraph 225.1(6)(b) does not apply. On the other hand, paragraph 225.1(6)(b) would apply to an assessment against the person who paid the rent to the non-resident owner of the property. Therefore, collection actions could not be commenced immediately against the non-resident owner of the Canadian property, but could be commenced against the Canadian renter or agent.

January 30, 2014

Non-resident Withholding Division HEADQUARTERS
Entities Section Income Tax Rulings
International Tax Services Office Directorate
Gillian Godson
Attention: Christopher Park
2012-046018

Application of Subsection 225.1(6)

We are writing in reply to your email of August 24, 2012, regarding whether the Minister is precluded from taking collection action by virtue of section 225.1 of the Income Tax Act (the "Act"). We apologize for the delay.

In the situation that you described, a non-resident disposes of a taxable Canadian property and files the required form, T2062, "Request by a Non-resident for a Certificate of Compliance Related to the Disposition of Taxable Canadian Property". The form requires the non-resident to provide information concerning whether the property has been used for rental purposes and whether Part XIII tax has been withheld and remitted with respect to any rental income. In a situation where the T2062 indicates that the required tax has not been withheld and remitted, the Priority Assessing team at the International Tax Service Office raises the applicable assessment against the non-resident under Part XIII of the Act.

Section 225.1 of the Act restricts the collection of unpaid amounts for which the taxpayer has been assessed under the Act. In general, the Minister is restricted from taking any of the various collections actions listed in paragraphs 225.1(1)(a) to (g), until either 90 days have passed since the assessment or an objection or appeal by the taxpayer has been disposed of. However, subsection 225.1(6) provides for exceptions to these collection restrictions in limited circumstances. Specifically, you have asked us whether the Minister could rely on paragraph 225.1(6)(b) in order to commence collection actions immediately against the non-resident in this situation.

Our Comments

Paragraph 225.1(6)(b) provides that the collection restrictions in subsection 225.1(1) do not apply to an amount required to be deducted or withheld, and required to be remitted or paid, under the Act or the corresponding regulations. This paragraph generally applies to deemed trusts created though a withholding obligation under the Act. Subsection 215(1) requires a person who pays, credits or provides an amount on which a tax is payable under Part XIII to deduct or withhold from it the amount of tax and remit it to the Receiver General. Therefore, the Minister would be able to rely on paragraph 225.1(6)(b) to commence immediate collection action of the amount that was required to be withheld from the rental payments made to the non-resident. However, the requirement to withhold the tax lies with the person who pays the rent to the non-resident owner of the property. As a result, collection actions could be commenced immediately on an assessment raised against the payor that was required to withhold and remit the tax. However, with respect to an assessment issued to the non-resident recipient in respect of the amount of Part XIII tax that should have been withheld by the payor, it is our view that paragraph 225.1(6)(b) would not be applicable because the Part XIII tax is not an amount of tax that the non-resident was required to withhold and remit. Consequently, unless another of the exceptions in subsection 225.1(6) was applicable, the collection limitations in section 225.1 would apply to collection actions against the non-resident.

We trust these comments will be of assistance.

Yours truly,

Terry Young, CA, CPA
for Director
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch