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.
Frank S. Gillman (613) 957-8953
Attention: XXXX
February 1st, 1989
Dear Sirs:
Re: Non-Resident Lessors
This is in reply to your letter dated July 27, 1988, wherein you requested our comments as to the applicability of Interpretation Bulletin IT-233R to non-resident lessors. Interpretation Bulletin IT-233R which specifically deals with Leasing, Lease Options and Sale-Leaseback is presently under review as it does not fully reflect the Department's position on the subject. It is anticipated that a revised Bulletin will be issued. However, we wish to offer the following general comments regarding non-resident lessors.
As a general rule, when a non-resident lessor is involved the Department will rely on the legal presumption that the form of the agreement reflects the true relationship between the parties unless the substance of the agreement indicates otherwise. Accordingly, tax under Part XIII of the Income Tax Act ("the Act") would be eligible in respect to payments of rent under a lease by a Canadian lessee to a non-resident lessor notwithstanding that the lease does not meet all the criteria referred to in paragraph 3 of Interpretation Bulletin IT-233R .
It is necessary to determine at the inception of the agreement whether the object of the agreement and the consideration being paid, is in reality transferring the ownership in the property from one party to another. If it is determined that the transaction is actually a sale rather than a lease, the Department will treat the arrangement as such.
In response to your question as to the applicability of withholding tax to a specific transaction, reference should be made to Part XIII of the Act in addition to any applicable Income Tax Convention in force between Canada and the country where the vendor or lessor is receiving payment.
The tax treatment of payments which are a combination of principal and interest are provided for in the provisions of paragraph 16(l)(a) of the Act. It should also be noted that such payments shall also be subject to the reasonableness test at section 67 of the Act.
We hope these comments prove helpful.
for Director Bilingual Services and Resource Industries Division Rulings Directorate
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