25 March 1994 External T.I. 9324915 - NON-RESIDENT WITHHOLDING TAX

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

			5-932491

XXXXXXXXXX P. Diguer

Attention: XXXXXXXXXX

March 25, 1994

Dear Sir/Madam:

Re: Non-resident withholding tax

We are writing in response to your letter dated July 21, 1993 in which you requested the Department's opinion concerning non-resident withholding taxes in regards to the factual situation described below. We apologize for the delay in responding to your request.

XXXXXXXXXX

It is your understanding that withholdings of this nature may be applied as a foreign tax credit against United States corporate taxes. However, as a non-profit organization in the United States, you do not pay corporate tax nor income tax of any kind and consequently have no tax payable against which to claim the foreign tax credit.

Specifically, you ask how and where may XXXXXXXXXX apply for a refund of the amounts withheld by the Canadian customers?

Comments

Pursuant to paragraph 1 of Article XXI of the Canada-U.S. Income Tax Convention (1980), (the "Canada-U.S. Convention"), but subject to the provisions of paragraph 3, income derived by a religious, scientific, literary, educational or charitable organization is exempt from tax in a Contracting State (i.e. Canada) if it is resident in the other Contracting State (i.e. U.S.) but only to the extent that such income is exempt from tax in that other State (i.e. U.S.). This exemption does not apply with respect to the income of a corporation from a trade or business. Since XXXXXXXXXX is a registered non-profit XXXXXXXXXX organization for all purposes related to the United States Internal revenue code, its income is exempt from tax in the United States. Accordingly, its income from Canadian sales of XXXXXXXXXX is exempt from Canadian income tax pursuant to Article XXI of the Canada-U.S. Convention so long as it is not income from carrying on a trade or business as envisioned by paragraph 3 of that Article. We are unable to express an opinion as to whether or not the activities relating to the sales to Canadian customers of XXXXXXXXXX would constitute a trade or business since this is a question of fact that can only be determined upon a complete review of all the relevant circumstances surrounding a particular transaction. Some of the characteristics of an activity that might be indicative of a trade or business are outlined in paragraph 7 of IT-496, a copy of which is enclosed for your convenience.

Should you determine that XXXXXXXXXX is exempt from Canadian income tax pursuant to Article XXI of the Canada-U.S. Convention, you can apply for a refund from the Minister. The procedure to follow to claim a refund under paragraph 1 of article XXI of the Canada-U.S. Convention are described in paragraphs 67 to 77 inclusively of Information Circular 77-16R4 (the "Circular"), a copy of which is enclosed for your information. We also enclose a copy of form NR7-R, (Application for Refund of Non-Resident Tax) for your convenience.

XXXXXXXXXX can apply to be recognized as an exempted organization for the purposes of paragraph 1 of Article XXI of the Canada-U.S. Tax Convention. Qualifying organizations are listed in the Department's annual publication entitled "List of United states Organizations Exempt from Canadian Non-Resident Tax under Article XXI(1) of the Canada-United States Tax Convention". A person paying an amount to a listed organization is not required to withhold non-resident tax. The procedures to follow in regards to such a request are described in paragraph 78 of the enclosed Circular.

We trust our comments will be of assistance.

Yours truly,

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

encl.