5 April 1991 Ministerial Correspondence 910504 F - Corporation Surtax

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.

Dear Sirs:

Re:  Section 123.2 of the Canadian Income Tax Act (the "Act")

This is in reply to your letter dated February 14, 1991 whereby you requested our opinion as to the meaning of the phrase "and as if subsection 124(1) were read without reference to the words "in a province therein" in paragraph 123.2(a) of the Act.  You particularly referred to a situation where a corporation that is not resident in Canada and that does not have a permanent establishment in Canada earns rental income taxed under section 216 of the Act or realizes a capital gain from the disposition of taxable Canadian property.

In our opinion, the 10% tax abatement provided for under subsection 124(1) of the Act is deducted in determining "the tax payable by the corporation under this Part" referred to in paragraph 123.2(a); but, for purposes of paragraph 123.2(a), such tax abatement is equal to 10% of the whole of the corporation's taxable income earned in the year and reported in the Income Tax Return in respect of which the surtax under paragraph 123.2(a) is being determined, rather than only 10% of the corporation's taxable income in the year in a province.

Generally, subject to paragraph 81(1)(a) of the Act:

(a)     where a non-resident corporation that does not have a permanent established in Canada pays tax on rent from real property situated in Canada pursuant to section 216 of the Act, the rent that is taxable under section 216 in a year is included in calculating the corporation's taxable income earned in the year in determining the corporate surtax under section 123.2 payable in respect of the return filed under section 216; and

(b)       taxable capital gains realized in the year by a non-resident corporation that does not have a permanent establishment in Canada from the disposition of taxable Canadian property are included in calculating the corporation's taxable income earned in the year in determining the corporate surtax under section 123.2 payable in respect of income of the kind referred to in subsection 115(1) of the Act.

By virtue of paragraph 81(1)(a) of the Act, amounts that are exempt from income tax by virtue of a tax convention or agreement between Canada and another country that has the force of law in Canada are not to be included in computing the income of a corporation.  Such amounts would of course also not be included in computing the corporation's taxable income earned in the year.

We observe that because other provisions of the Act beyond merely subsections 123(1) and 124(1) must be taken into account, e.g. section 123.1 the corporate surtax under section 123.2 is not 3% of 28% of taxable income.

The opinions expressed herein are not advance income tax rulings and in accordance with paragraph 21 of Information Circular 70-6R2 dated September 28, 1990 are not considered binding on the Department.

for DirectorReorganizations and Non-Resident DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch9104000 - 9104999