2 February 1988 Income Tax Severed Letter 5-5010D

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

This is in reply to your letters of October 23, 1987 and January 18, 1988 concerning non-resident tax assessed to you by this Department for the years 19(1) under Part XIII of the Canadian Income Tax Act (the "Act"). You are a resident of the United Kingdom and the Part XIII tax has been assessed on pension payments that you received from the XXX.

1984 and 1985 Assessments

Our reviews of your assessments for the 1984 and 1985 taxation years indicates that they are in accordance with the Canadian Income Tax Act (the "Act") and the provisions of the Canada-United Kingdom Income Tax Convention (1978) (the "Convention").

While the Act requires that the payor of the pension payments withhold tax (section 215 of the Act) from the payments to a non-resident, it is the non-resident's tax liability (paragraph 212(1)(h) of the Act) that is being paid; and, where such tax is not withheld, paragraph 227 (10.1)(b) of the Act provides for the direct assessment of the non-resident for the unpaid taxes and interest on such unpaid taxes. Even if an assessment was raised against the payor, that payor would be entitled to recover the tax from future payments to the non-resident person.

Under Article XVII of the Convention, as it read prior to being amended by a Protocol effective April 6, 1986, both Canada and the United Kingdom retained the right to tax your pension payments from XXX. In the case of Canada, the amount of tax was limited by that Article to 25 percent of the amount received in excess of $10,000 Canadian for a particular taxation year. Your assessments for 1984 and 1985 have made allowance for the exemption provided in the Convention.

In the case of the United Kingdom, that country is allowed to tax the full amount of your pension from XXX but, pursuant to Article XXI of the Convention, the United Kingdom must allow a tax credit against its tax in respect of the Canadian taxes paid (Interest on Canadian taxes owing is not included in computing the credit). Such a United Kingdom foreign tax credit is designed to prevent double taxation but the credit must be requested by the resident of the United Kingdom. To obtain a refund of any overpayment of United-Kingdom income taxes arising from your claim for a foreign tax credit, it will be necessary to make your claim with the United Kingdom Inland Revenue. You should contact them to determine how to proceed but in any case they will probably require proof of payment of the Canadian income taxes involved.

In summary, you are liable for 1984 and 1985 taxes in Canada as assessed and are eligible for a foreign tax credit in the United Kingdom with respect to Canadian taxes paid but not with respect to the interest paid on those taxes. Although the circumstances are unusual in your case as indicated above, we would like to point out that the Act authorizes the assessment of the interest.

1986 Assessment

Effective April 6, 1986 amended Article XVII of the Convention provides that Canada no longer has the right to tax the pension payments you receive from XXX. For the period from January 1, 1986 to April 5, 1986 Article XVII of the Convention as it read prior to the amendment would apply to the payments you received from XXX. As a liberal interpretation of that Article as it read then would indicate that the $10,000 Canadian exemption would apply to the first $10,000 Canadian received in a year, we have asked the Jonquiere Taxation Centre through Head Office Source Deductions Division to reconsider the entire XXX assessment.

Head Office Source Deductions Division and the Jonquiere Taxation Centre are aware of the urgency of this matter. Should you require additional information with regard to the Canadian taxation of your pension, your enquiries should be directed to:

Jonquiere Taxation Centre
2251 de la Centrale Blvd.
Jonquiere, Quebec
G7S 5J1

Attention: Mrs. M. Boucher
Non-Resident Section

Notices of Objection

As requested, we have enclosed copies of the Notice of Objection form. As the deadline has passed for the filing of a notice of objection pursuant to section 165 of the Act, we suggest if you decide to file a Notice of Objection that you make an application by letter to the Tax Court of Canada under section 167 of the Act for an order extending the time within which you may serve your notice of objection.

Your request should be sent by registered mail to:

• Registrar of the Tax Court of Canada 200 Kent Street, 3rd Floor Ottawa, Ontario, Canada K1A 0MI

It must be accompanied by three (3) copies of the notice of objection for each year under objection. In addition, your request must set forth the reasons that the notices were not filed on time; in your case, the distance and mailing time involved and the action taken by you to date to have these matters resolved. Also, the notices of objection themselves must contain details of each aspect of the above assessments that is under objection, the reasons for the objection and all facts relevant thereto.

In the meantime, we must advise that interest continues to be charged on all unpaid taxes even during periods when the assessment or reassessment is under objection or appeal. If you are unsuccessful in your objections, the related interest charges will be deleted or refunded, as applicable.

Competent Authority United Kingdom

If for any reason you should fail to obtain relief from double taxation by requesting your foreign tax credit from Inland Revenue, you are entitled under Article XXIII of the Convention to seek redress through the competent authority of the United Kingdom. Inland Revenue can advise you on how to contact the United Kingdom competent authority.

Please find attached the relevant provisions of the Convention.

We hope the above is of assistance to you.