6 October 1992 Income Tax Severed Letter 9213405 - GST on Witholding Tax for Services

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.

24(1)                               921340
                                           D. Patrick
                                           957-2125

Attention: 19(1)

Dear Sirs:

            Canadian Withholding Tax. 
            Income Tax Act - Section 212

This is in reply to your letter of April 20, 1992, wherein you requested confirmation that where the Bank is required to deduct or withhold Canadian tax, either under section 105 of the Income Tax Regulations, or under section 215 of the Income Tax Act, (i.e., Part XIII tax) from an amount paid or credited to a non-resident, that no tax is to be deducted or withheld from the Goods and Services Tax (GST) itself, if such tax is applicable to the above amount. You provided us with the following example:

Maintenance fee invoiced by a non-resident $1,000 for services rendered in Canada

     (+) GST charged by the non-resident            70
     Total amount invoiced by non-resident        1,070

(-) Canadian tax withheld by the Bank $1,000 X15% = (150)

     Net amount paid to the non-resident          $920

Our comments

The GST is a tax imposed on the recipient of a taxable supply, which is generally collected and paid to the Canadian government by the person making the supply. From the situation you have posed in your example it appears that you are concerned with a Division 2 supply, and in that regard we agree that the approach you are taking is the correct one. We also agree that the GST is not an amount of income for the person making the supply under the Income Tax Act. As provided by section 222 of the Excise Tax Act, where a person collects GST or amounts as or on account of GST, the person shall, for all purposes, other than the bankruptcy of the person, be deemed to hold the GST or amounts so collected in trust for Her Majesty. Accordingly, the GST amount of $70 in you example is not included in the amount in respect of which you must make withholding on account of the federal income tax.

Yours truly,

for Director Reorganizations and Foreign Division Rulings Directorate Legislative and Intergovernmental Affairs Branch

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