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.
Q1. What is the tax rate for resource royalties under the new treaty?
A1. 25% of gross amount, same as for rents, effective Jan. 1, 1985. The 10% rate on royalties in Article XII does not apply to Article VI, so the 25% rate in Part XIII of the Income Tax Act applies. Normally, a U.S. -resident individual will be taxable at 15% to Dec. 31, 1985 by virtue of paragraph 5 on Article XXX, and a U.S. resident corporation may benefit from the low rate up to Dec. 30, 1986, depending on its fiscal period. (i.e. “tax” in Article XXX, paragraph 5, means Canadian tax so far as the application of the Canadian Act is concerned, and “first taxable year” means the first full taxation year for which the Treaty has effect). Note that subsection 805(1) of the Regulations does not exempt the payor from withholding where the royalties are attributable to a business carried on by the non-resident in Canada. That exemption may be granted by the Minister under subsection 805(2).
Q2. Can Canadian resident payors receive permission from Revenue Canada to withhold at 15% far 1985 where the non-resident certifies that he is entitled to the low rate by virtue of Article XXX.
A2. No. As with all other withholding it is the responsibility of the payor to determine the proper rate.
Q3. Assuming that a U.S. resident will be eligible for the 15% rate to the end of 1985 and taxable at 25% on resource royalties for 1986, what is the tax rate on royalties which arise in Dec. 1985, but which are paid in Jan. 1986?
A3. 25%. Royalties are taxed when paid according to subsection 212(1)(d) of the Act.
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