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:
Is withholding tax exigible where compound interest is credited to a non-resident person's investment account annually but the non-resident is unable to access the interest until the maturity of the investment?
Position TAKEN:
No.
Reasons FOR POSITION TAKEN:
In Information Circular 77-16R4 we have taken the position that the interest must be unconditionally available to the non-resident before paragraph 212(1)(b) applies. It is our view that in this situation the interest is not unconditionally available to the non-resident.
941807
XXXXXXXXXX A. Seidel
Attention: XXXXXXXXXX
October 17, 1994
Dear Sirs:
This is in reply to your facsimile dated July 12, 1994 with respect to the filing of an NR4B for non-resident withholding tax remittances on interest that is compounded for up to three years before it is available to the non-resident.
As indicated in our letter of June 15, 1994, 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 Income Tax Act (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.
Similarly, by virtue of paragraph 202(1)(b) of the Income Tax Regulations the financial institution would not be required to file a NR4B until the earliest of the times described above, ie. when the compound interest is paid or credited and becomes unconditionally available to the non-resident person.
Whether or not the non-resident person has the option to, or is required to, report the interest income in the country where they are resident will depend on the domestic tax laws in the specific country. Regardless of whether the non-resident person chooses to, or is required to, report the interest income under their domestic tax law, a foreign tax credit will not normally be available to the non-resident person until Canadian tax is withheld pursuant to paragraph 212(1)(b) of the Act which does not occur until the maturity of the investment.
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
Policy and Legislation Branch
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