25 January 1996 External T.I. 9601765 - WITHHOLDING

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:

5 year limit re; withholding tax on interest

Position:

Anything less than 5 years would not qualify for exemption.

Reasons:

Law as written

		960176

XXXXXXXXXX S. J. Tevlin

Attention: XXXXXXXXXX

January 25, 1996

Dear Sirs:

Re: Subparagraph 212(1)(b)(vii)

We are writing in response to your letter dated January 2, 1996 wherein you requested our comments with respect to whether the interest on a guaranteed investment certificate ("GIC") would qualify for the exemption from withholding tax provided by subparagraph 212(1)(b)(vii) of the Income Tax Act, although the maturity date of the GIC was set less than five years from the date of its issue, for administrative purposes.

As your enquiry deals with a completed transaction your enquiry should be directed to the responsible tax services office. We will however offer the following general comments.

Subparagraph 212(1)(b)(vii) of the Act provides that the interest payable by a corporation resident in Canada to a person with whom that corporation is dealing at arm's length is not subject to withholding tax under paragraph 212(1)(b) of the Act,

" if, under the terms of the obligation or any agreement relating thereto, the corporation may not, under any circumstances, be obliged to pay more than 25% of ... the principal amount of the obligation within 5 years from the date of issue of that single debt issue or that obligation ... except in the event of a failure or default under the said terms of the agreement, ... ".

Therefore, where the maturity date of the GIC is a day that is earlier than a day which is five years from the date the obligation was issued and the repayment is not a result of an event of failure or default, the GIC would not qualify for the exemption provided by subparagraph 212(1)(b)(vii) of the Act. As noted in your letter, this position is supported by the comments expressed in paragraph 4 of Interpretation Bulletin 361R2.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch