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.
Principales Questions:
Whithholding tax on dividends and interest paid to non-residents
Position Adoptée:
generaly the income earned by a trust under a RRSP plan is not taxable pursuant 146(4). The mere fact that an individual has ceased to be a resident of Canada does not imply in itself that their RRSP is considered to have become deregistered or that tax becomes payable under Part I
Raisons POUR POSITION ADOPTÉE:
It-415R, par. 4
5-933739
XXXXXXXXXX Carole Pronovost
Attention: XXXXXXXXXX
June 14, 1994
Dear Sirs,
Subject: Withholding tax on dividends and interest paid to non-residents
This is in reply to your letter of December 20, 1993 concerning withholding taxes on dividends and interest paid to non-residents. You request our opinion on the question of whether the dividend and interest income earned in a self-directed RRSP (Registered Retirement Savings Plan) owned by a non-resident of Canada is subject to non-resident withholding tax or not. In addition, you ask whether the non-resident's other investment income (dividend and interest) is subject to non-resident tax.
Generally, but except as noted below, the income earned by a trust under a RRSP plan is not taxable pursuant to subsection 146(4) of the Act. Moreover, a beneficiary under an RRSP is not taxable on the income of the RRSP as the income is earned by the RRSP. Instead, the amounts are taxed as they are paid to the beneficiary out of the RRSP. Accordingly, payments (except for certain permitted transfers) out of or under an RRSP or plan referred to in subsection 146(12) that would, if the non-resident had been resident in Canada throughout the taxation year in which the payment was made, be required to be included in his income for the year, are taxable at the rate of 25% of the amount so paid or credited pursuant to paragraph 212(1)(l) of the Act. The withholding rate may be reduced by virtue of a tax convention or agreement. Canada has preserved its right to tax such payments in most of the tax conventions and agreements which it has entered into. For instance, under the Canada-U.S. 1980 Tax Convention, Canada has reserved its right to tax lump sum payments paid out of a retirement plan at the rate of 25%.
Pursuant to paragraph 146(4), and by exception to the aforementioned general rule, a trust governed by a registered retirement savings plan, is taxable as follows:
(a)if the trust has borrowed money (other than money used in carrying on a business) in the year or has, after June 18, 1971, borrowed money (other than money used in carrying on a business) that it has not repaid before the commencement of the year, tax is payable under the Part I of the Act by the trust on its taxable income for the year;
(b)in any case not described in paragraph (a), if the trust has carried on any business or businesses in the year, tax is payable under Part I of the Act by the trust on the amount that its taxable income for the year would be if it had no income or loss from sources other than from that business or those businesses; and,
(c)if the last annuitant under the plan has died, tax is payable under Part I of the Act by the trust on its taxable income for each year after the year of his death.
A trust governed by an RRSP is also taxable pursuant to subsection 146(10.1) of the Act if it holds a property that is a non-qualified property. The mere fact that an individual has ceased to be a resident of Canada does not imply in itself that their RRSP is considered to have become deregistered or that tax becomes payable under part I by a trust on the taxable income of the trust for a taxation year. The Department views a plan as having been deregistered when it is so amended that it no longer satisfies the requirements of subsections 146(2) and (3) for registration (see IT-415R, par.4).
Generally, a non-resident who earns certain types of income such as rent, interest, pension, dividend, etc. is subject to a 25% withholding tax under Part XIII of the Act (section 212). The rate may be reduced by virtue of a tax treaty. For example, the withholding rate for interest paid to a resident of the United States is reduced to 15% pursuant to Article XI, paragraph 2, of the Canada-U.S. 1980 Tax Convention.
We trust our comments will be helpful.
Yours truly,
for Director
Reorganizations and Foreign Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch
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