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: What is the meaning of "any amount
available out of the rent or royalty received for remittance"?
Position: The words "any amount
available out of the rent or royalty received for remittance to the non-resident person
" refer to the amounts available for payment by the agent to the non-resident after the agent has paid allowable expenses on behalf of the non-resident. However, the CRA will allow the agent to withhold and remit Part XIII tax based on the amount that is the non-resident's net rental income. Thus, in the situation described, the agent could take into account allowable expenses paid by the non-resident.
Reasons: Subsection 216(4) provides an option for the agent of the non-resident to withhold and remit Part XIII tax based on net amounts. Generally, according to the text of subsection 216(4), those amounts will be the gross amount less any allowable expenses paid directly by the agent. However, in Guide T4144, Income Tax Guide for Electing Under Section 216, the CRA states that once a Form NR6 has been approved, the CRA will allow the agent to remit Part XIII tax based on the amount that is the non-resident's net rental income, thus allowing the agent to take into account expenses paid by the non-resident.
XXXXXXXXXX
2014-052070
Andrew Deak
613-957-2130
July 22, 2014
Dear XXXXXXXXXX:
Subject: Subsection 216(4) - withholding on net amount
We are writing in response to your letter dated February 13, 2014, in which you requested our views on the meaning of the phrase "any amount
available out of the rent or royalty received for remittance to the non-resident person
" in subsection 216(4) of the Income Tax Act (the "Act"). We apologize for the delay in responding.
Section 216 of the Act allows two possible ways for a non-resident person to file a return of income under Part I. Pursuant to subsection 216(1), the non-resident person may file a return of income under Part I for a taxation year within two years after that year. Under subsection 216(4), where a non-resident undertakes in prescribed form to file within six months after the end of a taxation year a return of income under Part I, the Canadian agent of the non-resident can elect to withhold and remit to the Receiver General Part XIII tax calculated based on "any amount
available out of the rent or royalty received for remittance to the non-resident person".
Your letter provided an example where a Canadian agent remits rent to a non-resident who owns rental property in Canada. The Canadian agent and the non-resident have filed a Form NR6, Undertaking to File an Income Tax Return by a Non-Resident Receiving Rent from Real or Immovable Property or Receiving a Timber Royalty, so that withholding tax can be remitted to the Receiver General under subsection 216(4). In your example, there are a number of expenses relating to the rental property, some of which are paid by the agent and some by the non-resident.
On this basis, you have asked us to confirm the meaning of the words "any amount
available out of the rent or royalty received for remittance to the non-resident person
" in subsection 216(4). Specifically, you have asked us to confirm whether withholding is calculated based on:
the amount in the hands of the agent, namely the gross rental income less any expenses paid directly by the agent; or
the non-resident's net rental income, taking into account rental expenses that have been paid by either the agent or the non-resident.
Further, you have asked whether the Canadian agent should remit the tax when rent is actually paid to the non-resident owner or when it is credited to a trust account maintained by the Canadian agent.
Our Comments
This technical interpretation provides general comments about the provisions of the Act. 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.
In our view, the phrase "any amount
available out of the rent or royalty received for remittance to the non-resident person
" refers to the amount of rent or royalty collected, less any allowable expenses paid by the agent. Such expenses would include items such as repairs and maintenance, property taxes, property management fees, and interest and service charges relating to the financing of the property in question. However, as noted in Guide T4144, Income Tax Guide for Electing Under Section 216, once a Form NR6 has been approved, the Canada Revenue Agency will allow the agent to withhold and remit tax based on the amount that is the non-resident's net rental income. Thus, in the situation you described, the agent could take into account allowable expenses paid by the non-resident. If the non-resident directly pays allowable expenses and the agent seeks to withhold and remit on the net amounts, the agent will need to ensure that it has received all the necessary information from the non-resident in order to calculate the appropriate amount of Part XIII tax.
With respect to the question of timing, the agent would remit the tax by the 15th day of the month following the month an amount is paid or credited to the agent or other person on behalf of the person entitled to the payment. For further information, please refer to Guide T4144 and Interpretation Bulletin IT-393R2 (Archived), Election Re: Tax on Rents and Timber and Royalties Non-Residents.
We trust our comments will be of assistance.
Yours truly,
Terry Young, CPA, CA
Manager, Administrative Law Section
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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