2 May 1994 Internal T.I. 9409560 - CAPITAL AMOUNT PAID BY TRUST TO NON-RESIDENT (8192)

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.

Principal Issues:

Whether all capital distributions made by a trust or estate to non-resident beneficiaries are subject to Part XIII tax by virtue of subsection 212(11) of the Act.

Position TAKEN:

NO.

Reasons FOR POSITION TAKEN:

Any particular capital distribution made by a trust or an estate is only subject to Part XIII tax to the extent it is an amount described in subparagraph 212(1)(c)(i) or (ii) of the Act. Subsection 212(11) of the Act merely characterizes any amount paid or credited by a trust or an estate as income of the trust or estate for the purposes of paragraph 212(1)(c) of the Act.

DRAFT

Alberta Chartered Accountants Roundtable

Question No. 8

Capital Distributions to Non-Resident Beneficiaries of a Trust

In 1991, amendments were made to subsection 212(11) and paragraph 212(1)(c) of the Income Tax Act (the "Act") and, as a result of the amendments, subsection 212(11) of the Act deems all amounts credited by a trust or an estate to a beneficiary thereof to be deemed, for the purposes of paragraph 212(1)(c) of the Act, to be paid or credited as income of the trust regardless of the source from which the trust or estate derived it. The May 1991 Explanatory Notes prepared by the Department of Finance indicate that these amendments were made to ensure that Part XIII tax is payable on a capital distribution made by a trust to a non-resident where such a distribution may reasonably be considered to relate to a capital dividend received by the trust. As amended, subsection 212(11) of the Act is broad enough to capture any capital distribution whatsoever from a trust or an estate.

As a result of the amendment to subsection 212(11) of the Act, will there be a requirement to withhold Part XIII tax on all capital distributions from a trust or an estate?

Department's Position

No. Subsection 212(11) of the Act merely characterizes any amount paid or credited by a trust or an estate as income of the trust or estate for the purposes of paragraph 212(1)(c) of the Act. The wording in paragraph 212(1)(c) of the Act then makes it clear that such an amount is only subject to Part XIII tax to the extent it is an amount described in subparagraph 212(1)(c)(i) or (ii) of the Act. In general, this would be, respectively,

1. an amount that would have been subject to tax under Part I of the Act if it had been paid to a person resident in Canada to whom Part I was applicable, except to the extent that the amount is deemed by subsection 104(21) of the Act to be a taxable capital gain of a non-resident investor in a mutual fund trust; or

2. a distribution made by a trust or an estate where that distribution may reasonably be considered to relate to a capital dividend received by the trust or estate.

The Department's position on capital distributions from a trust or an estate is set out in paragraphs 34 to 37 of Information Circular 77-16R4.

Author: G. Middleton
File No: 940956
Date: May 2, 1994
Subject: Part XIII tax on "capital dividend" distributions and other capital distributions made by a trust or an estate to non-resident beneficiaries.

Sections: 212(1)(c) & 212(11)

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