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.
XXXX
February 10, 1984
Director Non-Corporate Rulings Division Revenue Canada Taxation 875 Heron Road Ottawa, Ontario K1A 0L8
Attention: Ms. Carol Muirhead
Dear Ms. Muirhead:
We request a technical interpretation on the application of Article XVII of the Canada-U.K. Tax Convention to payments under a single premium deferred annuity contract and benefits paid under the Old Age Security Pension Act and the Canada Pension Act to a resident of the United Kingdom.
Article XVII exempts from Canadian withholding tax at source the first $10,000 of pension and annuity income arising in Canada and paid to a resident of the U.K.
Payments under a deferred annuity contract are usually comprised of a capital element and an income element. The capital element of an annuity payment is calculated pursuant to Part III of the Regulations prescribed under the Income Tax Act. The general rule under the Income Tax Act is that the income element of an annuity payment made to a non-resident of Canada is subject to a 25% withholding tax - paragraph 212(1)(o).
It is our opinion that the $10,000 exemption provided by Article XVII of the Canada-U.K. Tax Convention is calculated with reference to the income element of an annuity payment only and not to the total amount of the payment. Consequently in a hypothetical situation where a $50,000 annuity payment is made to a resident of the U.K. ($40,000 capital and $10,000 income) no part of the payment will be subject to Part XIII tax in Canada.
We request you to confirm our interpretation of Article XVII of the Treaty and paragraph 212(1)(o) of the Income Tax Act.
We also request you to confirm our opinion that benefits paid to a resident of the U.K. under the Old Age Security Pension Act and the Canada Pension Act are pensions that fall within the exemption provided in Article XVII of the Treaty.
We look forward to receiving your reply in due course.
Yours very truly,
XXXX
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