15 June 1994 External T.I. 9410965 - 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.

		941096
XXXXXXXXXX	A. Seidel

Attention: XXXXXXXXXX

June 15, 1994

Dear Sirs:

This is in reply to your facsimile dated April 25, 1994 with respect to non-resident withholding tax remittances on interest that is compounded for up to three years before it is available to the non-resident.

Unless otherwise indicated, all references to a statute are to the Income Tax Act S.C. 1970-71-72, c.63, as amended, consolidated to June 10, 1993 (the "Act").

Pursuant to paragraph 212(1)(b) of the Act, every non-resident person shall pay an income tax of 25% on every amount that a person resident in Canada pays or credits to such non-resident person as, on account or in lieu of payment of, or in satisfaction of, interest unless the interest is excepted pursuant to any of the provisions in subparagraphs 212(1)(b)(i) through (xi) of the Act. This 25% rate may be revised by one of Canada's tax treaties.

The Department's views as to when an amount has been "credited" for the purposes of subsection 212(1) of the Act are discussed in Information Circular 77-16R4 ("IC 77-16R4"). Paragraph 5 of IC 77-16R4 states that an amount has been "credited" to a non-resident person "where a resident of Canada has set aside and made unconditionally available to the non-resident creditor an amount due to the non-resident".

In the situation where a financial institution credits the interest earned on a compound interest investment to a non-resident person's investment account annually but the interest cannot be accessed until the maturity of the investment, the death of the non-resident person or the redemption of the investment due to financial hardship, it is our view that the non-resident person is not subject to tax pursuant to paragraph 212(1)(b) of the Act at the time the interest is credited to the investment account because the amounts are not unconditionally available to the non-resident person.

The tax payable under subsection 212(1) of the Act will be payable on the full amount of interest when it is paid or credited, ie. the maturity of the investment, the death of the non-resident or the redemption of the investment due to financial hardship.

These comments are provided in accordance with the guidelines set out in paragraph 21 of Information Circular 70-6R2.

Yours truly,

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