15 August 1990 Internal T.I. 59777 F - Withholding Tax Non-resident Partnerships

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.

Attention: 19(1)

August 15, 1990

Dear Sirs:

Re: Subsection 212(13.1) of the Income Tax Act and Article XI of the Canada-United States Income Tax Convention 1980

This is in reply to your letter dated March 15, 1990 whereby you requested our views as to the application of the above-noted provisions of the Income Tax Act and the Canada-United States Income Tax Convention, 1980 (the "Treaty") to interest paid by a partnership comprised entirely of U.S. resident individuals on a loan (not secured by real property situated in Canada or any interest therein) made by a U.S. bank to the partnership to finance the acquisition of Canadian rental property in respect of which the partners intend to make an election under section 216 of the Act.

In our opinion, the words "other than section 216" in subsection 212(13.1) simply mean that paragraph (b) of section 212(13.1) does not apply for purposes of section 216 to deem a partnership to be a non-resident person that can itself make an election under section 216 to be taxed as though it were a person resident in Canada. Generally these words have no relevance to paragraph (a) of section 212(13.1).

Assuming the deeming provisions of paragraph 6 of Article XI of the Treaty do not apply in the particular circumstances, the determination as to where interest payable by the partnership arises is essentially a question of fact to be determined having regard to all the circumstances.

Based upon the information provided to us and assuming that the effective source of the funds for the interest payments is the Canadian real property, it would be our position that the interest paid by the partnership arises in Canada.

The opinions expressed herein are not advance income tax rulings and, in accordance with paragraph 24 of Information Circular 70-6R dated December 18, 1978, are not considered binding on the Department.

Yours truly,

for DirectorReorganizations and Non-Resident DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch