27 September 1994 External T.I. 9412615 - NON-RESIDENT BENEFICIARIES 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.

Principal Issues:

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

Position TAKEN:

no

Reasons FOR POSITION TAKEN:

Any capital distribution made by a trust 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 as income of the trust for the purposes of paragraph 212(1)(c) of the Act.

		941261
XXXXXXXXXX	C.R. Bowen

Attention: XXXXXXXXXX

September 27, 1994

Dear Sirs/Mesdames:

We are writing in reply to your letter of May 16, 1994, wherein you requested our comments on whether, pursuant to subsection 212(11) and paragraph 212(1)(c) of the Income Tax Act (the "Act"), capital distributions from an estate or a trust, other than the distributions of amounts received by an estate or a trust on account of non-taxable dividends from a corporation resident in Canada, are subject to non-resident withholding tax. We apologize for the delay in responding to your letter.

Our Comments

Subsection 212(11) of the Act characterizes any amount paid or credited by a trust or an estate to a beneficiary or other person beneficially interested therein as income of the trust or estate for the purposes of paragraph 212(1)(c) of the Act. However, any capital distribution made by a trust or an estate is only subject to Part XIII tax to the extent that it is an amount described in subparagraph 212(1)(c)(i) or (ii) of the Act. Therefore, for example, the non-taxable portion of a trust or an estate's capital gain paid or payable to a non-resident beneficiary will not be subject to non-resident withholding tax even though subsection 212(11) of the Act recharacterizes that amount as income of the estate or trust. 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.

Prior to the amendment to subsection 212(11) of the Act which is effective with respect to amounts paid or credited after July 13, 1990, it had been suggested that a payment of taxable capital gains was exempt from Part XIII tax as it constituted a "payment of capital" within the meaning of subsection 212(11) of the Act, since, under trust law, capital gains generally form part of the capital of a trust. As indicated in paragraph 17 of Interpretation Bulletin IT-465R dated September 19, 1985, the Department's view is that a distribution of taxable capital gains is a distribution of trust income for income tax purposes. The amendment to subsection 212(11) of the Act removed any uncertainty concerning the correct interpretation of that provision.

These comments represent our opinion of the law as it applies generally. As indicated in paragraph 21 of the Information Circular 70-6R2 dated September 28, 1990, this opinion is not a ruling and accordingly, it is not binding on Revenue Canada, Customs, Excise and Taxation.

Yours truly,

for Director
Manufacturing Industries, Partnerships
and Trusts Division
Rulings Directorate
Policy and Legislation Branch

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