18 November 1987 Income Tax Severed Letter 8-0123 - [871118]

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.

November 18, 1987

Specialty Rulings Directorate K.B. Harding 957-2129

RE: XXXX

This is in reply to your round trip memorandum dated September 16, 1987 concerning a foreign tax credit claimed by the above taxpayer.

It is our understanding that the taxpayer

XXXX

The taxpayer's representative is of the view that paragraph 4 of Article XXIV of the Canada - U.S. Income Tax Convention (Convention) does not restrict his client from claiming a foreign tax credit on the full amount of the tax paid to the United States.

Paragraph 4 of Article XXIV of the Convention provides that Canada shall allow a deduction from Canadian tax in respect of income tax paid or accrued to the United States in respect of profits or income arising in that country. The deduction from Canadian tax, as calculated in accordance with the Income Tax Act, need not exceed the amount of tax that would be paid to the United States if the Canadian resident was not a U.S. citizen which pursuant to Article XVIII of the Convention would not exceed 15% of the gross amount of the pension received. The United States will allow a credit against U.S. tax in respect of the Canadian tax paid by the U.S. citizen. Paragraph 6 of Article XXIV of the Convention will deem taxes paid on income earned in the U.S. to arise in Canada to the extent necessary to avoid double taxation of such income.

Paragraph 4 of Article XXIV of the Convention does not preclude Canada from applying subsection 20(11) and therefore the non-business-income tax, as defined in paragraph 126(7)(c), is automatically reduced by the amount deducted under that subsection. Since subsection 20(11) permits a deduction with respect to the portion of the tax paid to the foreign government in excess of 15 per cent we are of the view

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Since this is in accordance with the provisions of Articles XVIII and XXIV of the Convention, the U.S. will treat a portion of the pension income as arising in Canada in order to avoid double taxation as provided for in paragraph 6 of the latter Article.

We trust these comments are suitable for your purposes and the files are herewith enclosed.

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