23 March 1988 Income Tax Severed Letter 5-5671 - [880323]

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.

R.C. O'Byrne 957-2126

March 23, 1988

Dear Sir:

This is in reply to your letter of March 4, 1988 in which you asked about the Canadian tax consequences of receiving payments from a United States ("U.S.") partnership.

As a Canadian resident you are taxabe in Canada on your world income (income and losses from all source)

To determine what your share of the U.S. partnership's profit or loss is for 1987 you would have to obtain a copy of its 1987 financial statements, determine what its income or loss was for that period andinclude your partnership share of that income or loss, converted to Canadian dollars, in the calculation of your 1987 income. Cash distributions from the U.S. partnership which are distributions of accumulated profits or a return of capital are not considered to be income for Canadian tax purposes.

As a member of the partnership you are considered to be carrying on business in the United States through a permanent establishment. In such a situation the Canada-United States Tax Convention, (1980) (the "Convention") provides that the United States may tax business income attributable to that permanent establishment. In addition Particle XIII of the Convention provides that the United States may tax gains derived by a resident of Canada from the alienation of real property situated in the United States. If you wish to inquire about the taxation of the U.S partnership income in the U.S. or about waiving the U.S. withholding, tax wc recommend that you contact the

The Convention provides for a foreign tax credit in Canada, subject to any foreign tax credit limitation in Canadian tax law, for income tax paid to the United States on profits, income or gains earned in that country. Thus you would be entitled to claim a foreign tax credit for this withholding tax provided that the U.S. withholding tax is an income tax paid to the United States on income or profits earned in that country and is not a tax on the distribution of accumulated profits. As previously stated we have not been provided with enough information to determine whether or not this U.S. withholding tax relates to the U.S. partnership's fourth quarter profits or to a distribution of accumulated profits.

We trust this will be of assistance to you.

Yours truly,

for Director Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch,