26 July 1988 Income Tax Severed Letter 7-2888 - []

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.

DATE July 26, 1988

TO Source Deductions Division Non-Resident Section

Attention: E. Hammond

FROM Financial Industries Division F. Francis (613)957-3498

SUBJECT: Interest income accruing to a non-resident from an annuity contract

This is in reply to your memorandum dated May 18, 1988, wherein you requested a technical interpretation with respect to the withholding requirements under paragraph 212(1)(o) of the Income Tax Act (the "Act") for accrued interest on a non-registered annuity contract.

We concur with your position that, pursuant to section 12.2 of the Act, taxpayers are required to accrue income either on the third anniversary of an annuity contract or every year if an election is made under subsection 12.2(4) of the Act.

However, by virtue of the preamble to subsection 212(1) of the Act, a non-resident will only be required to pay a withholding tax under paragraph 212(1)(o) of the Act when a person in Canada pays or credits, or is deemed by Part I of the Act to have paid or credited, an amount under that paragraph to him.

As a consequence thereof, pursuant to paragraph 212(1)(o) of the Act, Part XIII tax will be exigible only in respect of any payment that would be required to be included in income under paragraph 56(1)(d.1) or subsection 12.2(3) of the Act if the non-resident person had been resident in Canada throughout the year.

It should be noted that an annuity issued to a non-resident of Canada would not meet the definition of "life insurance policy in Canada" and as such would not be subject to the rules of sections 115 and 116 of the Act.

We trust the above comments are of assistance to you.

for Director Financial Industries Division Rulings Directorate