6 September 1995 External T.I. 9512045 - 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:

Withholding rate applicable to a taxable dividend paid by a mutual fund trust to a unitholder resident in Germany.

Position TAKEN:

Part XIII tax rate is 25%. There is no reduction in the withholding rate under the Canada-Germany Income Tax Agreement.

Reasons FOR POSITION TAKEN:

Application of subsection 212(11) and 214(3)(f.1) of the Act for purposes of paragraph 212(1)(c) of the Act.

		951204
XXXXXXXXXX	A. Seidel

Attention: XXXXXXXXXX

September 6, 1995

Dear Sirs:

This is in reply to your letter dated April 25, 1995 in which you requested confirmation of the rate of withholding tax applicable to non-residents on income received from a mutual fund trust. In particular, you have concluded that a taxable dividend which is distributed by a Canadian mutual fund trust to a unitholder who is resident in Germany would be subject to a withholding tax rate of 25% under Part XIII of the Income Tax Act (the "Act"). The expression "mutual fund trust" has the meaning assigned by subsection 132(6) of the Act.

Generally, distributions of income by a mutual fund trust to its non-resident unitholders will be subject to withholding tax under paragraph 212(1)(c) of the Act at the rate of 25%, or such lower rate as set by treaty. An exception to paragraph 212(1)(c) is made, inter alia, for amounts deemed by subsection 104(21) of the Act to be a taxable capital gain. By virtue of such designation, the gains are deemed to be taxable capital gains from the disposition of capital property by the non-resident unitholder.

For purposes of paragraph 212(1)(c) of the Act, subsection 212(11) of the Act deems any amount paid or credited by a trust, including a mutual fund trust, to have been paid or credited as income of the trust, regardless of the source from which the trust derived such amount. In addition, paragraph 214(3)(f.1) of the Act provides that where an amount designated pursuant to subsection 132.1(1) of the Act is in respect of a non-resident, the amount is deemed to be an amount paid or credited as income of or from the trust on the day of designation.

Since there is no provision in the Canada-Germany Income Tax Agreement (1981) which reduces the rate of withholding tax under paragraph 212(1)(c) of the Act applicable to income paid or credited to a resident of Germany from a mutual fund trust, we would agree with your conclusion that such amounts would be subject to a withholding tax rate of 25%. The tax rates applicable to estate or trust income paid to beneficiaries in various treaty and non-treaty countries are as outlined in Appendix A of Information Circular 76-12R4, as amended by the Special Release thereto. It should be noted, however, that these rates reflect the status of Canada's treaties as of October 1, 1988 and may be affected by any amendments to such treaties or new treaties which take effect subsequent to that date.

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
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch