2 July 2014 External T.I. 2013-0485651E5 - Non-resident estate

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: 1) Is Part XIII tax required to be withheld on a payment of a deemed dividend to an estate that is deemed to be a non-resident trust pursuant to subsection 94(3) of the Act?
2) Is the estate required to obtain a certificate of compliance on the disposition of shares of a Canadian corporation?

Position: 1) Yes. 2) Generally, yes.

Reasons: 1) Pursuant to paragraph 94(4)(c) of the Act, the deeming provisions of paragraph 94(3)(a) are not applicable with respect to determining the liability of a person (other than the trust) that would arise under section 215.
2) A trust is deemed to be resident for certain purposes of the Act and is not deemed to be resident for the purpose of section 116 of the Act. Where the non-resident trust or the deemed resident trust has disposed of taxable Canadian property, the provisions of section 116 are generally applicable.

XXXXXXXXXX
2013-048565
V. Srikanth

July 2, 2014

Dear XXXXXXXXXX:

Re: Non-Resident Estate

This is in response to your correspondence dated April 12, 2013 wherein you requested our views on the tax consequences to an estate (the "Estate") of a deceased taxpayer who prior to his death was a Canadian resident. Please accept our apologies for the delay in responding.

You have described a situation wherein the sole executor of the Estate is not a resident of Canada and the Estate holds shares of a corporation (the "Corporation") which is now being wound up. In this context, you would like our views on:

(a) the residency of the Estate;
(b) whether there would be the Part XIII withholding tax on the deemed dividend from the winding-up of the Corporation; and
(c) whether the Estate would be required to obtain a certificate of compliance on the disposition of the shares pursuant to subsection 116(1) of the Income Tax Act (the "Act").

Our Comments

This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R5, Advance Income Tax Rulings. Where the particular transactions are completed, the inquiry should be addressed to the audit division of the applicable Canada Revenue Agency Tax Services Office.

For purposes of our response, we have assumed that:

1) the Corporation is resident in Canada, and

2) upon the winding-up of the Corporation, the Estate will be deemed to have received a dividend pursuant to subsection 84(2) of the Act.

Generally, by virtue of the definition of "trust" in subsection 248(1) of the Act, an estate is a trust under the Act. For purposes of the non-resident trust rules in section 94, the "trust" definition in subsection 94(1) clarifies that, for greater certainty, a reference to a trust includes an estate. Residency of a trust is a question of fact. Generally, a trust is factually resident where the central management and control of the trust is exercised (Fundy Settlement [St. Michael Trust Corp. / Garron] v The Queen 2012 SCC 14). However, pursuant to subsection 94(3) of the Act, a trust which is otherwise factually non-resident, will be deemed to be resident in Canada if at the end of the taxation year (provided the trust exists at that date) or the time in the taxation year immediately before it ceases to exist (known as the "specified time"), there is a "resident contributor" or a "resident beneficiary", each term as defined in subsection 94(1) of the Act.

Therefore, in the given situation, it would be a question of fact whether the Estate had a "resident beneficiary" or a "resident contributor" in a particular year. Further, the concept of residence necessarily implies that the person must be in existence. Therefore, a deceased natural person would not be a resident of Canada. Hence, in the given instance, the deceased would not be considered in the determination of a "resident contributor". The determination of whether there would be a "resident beneficiary" would depend on the facts in a given situation.

Withholding tax on deemed dividend

A trust which is deemed to be resident in Canada pursuant to subsection 94(3) is exempt from Part XIII tax on amounts paid or credited to it, pursuant to subparagraph 94(3)(a)(viii) of the Act. It is also exempt from the Part XIII withholding requirement on certain Canadian-source income earned by it that becomes payable by the trust in the year to non-resident persons, pursuant to subparagraph 94(3)(a)(ix). However, paragraph 94(4)(c) of the Act provides that a deemed resident trust under subsection 94(3) is not considered resident in Canada for the purposes of determining the liability of a person (other than the trust) to withhold and remit under section 215 of the Act.

Accordingly, in the given instance, there will be a requirement to withhold Part XIII tax on the deemed dividend that arises on the winding-up of the Corporation. However, to the extent the amount on which the Part XIII tax is paid is included in the trust's income, paragraph 94(3)(g) of the Act deems the withholding amount to have been paid on account of the trust's tax under Part I for the particular taxation year.

Certificate of compliance

Subsection 116(1) provides that if a non-resident person proposes to dispose of taxable Canadian property ("TCP") (other than property described in subsection (5.2) and excluded property as defined in subsection (6)), the non-resident person, may at any time before the disposition, send the Minister of National Revenue a notice setting out certain information with respect to the purchaser of the property, a description of the property, the proceeds of disposition and the adjusted cost base. This is done by completing form T2062, entitled ‘Request by a Non-Resident for a Certificate of Compliance Related to the Disposition of Taxable Canadian Property'. Whether a property is TCP, as defined in subsection 248(1) of the Act, is a question of fact.

Where a trust is factually resident in Canada at the time of the disposition of the property, section 116 does not apply and the filing of form T2062 is not required. In the case of a non-resident trust, paragraph 94(3)(a) of the Act does not deem the trust to be resident in Canada for the purposes of subsection 116(1).

Accordingly, in the given instance, if the Estate is not factually resident in Canada and has disposed of TCP (other than property described in subsection 116(5.2) and excluded property as defined in subsection (6)), the provisions of section 116 will apply and the Estate will be required to file form T2062.

We trust our comments will be of assistance to you.

Yours truly,

Phil Kohnen
Manager, Trusts Section I
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch