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 an amount payable by a Canadian trust to a non-resident beneficiary for which a designation under 104(13.1) has been made subject to non-resident withholding tax under 212(2)(c)?
Position:
The amount designated under 104(13.1) is not subject to 212(1)(c).
Reasons:
Where a designation has been made under 104(13.1) in respect of an amount payable to a beneficiary, it is considered not to have been paid to the beneficiary for the purposes of 104(13) and also for the purposes of 212(1)(c) which refers to 104(13).
960678
XXXXXXXXXX C.R. Bowen
Attention: XXXXXXXXXX
March 7, 1996
Dear Sirs:
We are writing in reply to your letter dated February 20, 1996, wherein you requested our comments on whether income payable by a testamentary trust resident in Canada to its non-resident beneficiaries for which a designation under subsection 104(13.1) of the Income Tax Act (the "Act") has been made will be subject to withholding tax under paragraph 212(1)(c) of the Act.
Subsection 104(13.1) of the Act provides, in part, that where a trust designates an amount in respect of a beneficiary under the trust not exceeding the amount determined by the formula therein, the amount so designated will be deemed for the purpose of subsection 104(13) of the Act not to have been paid or to have become payable in the year to the beneficiary. In this regard, the Technical Notes to Bill C-139 issued by the Department of Finance on June 30, 1988, concerning the introduction of new subsections 104(13.1) and (13.2) of the Act provide the following comments:
New subsections 104(13.1) and (13.2) are consequential on the change to subsection 104(6) which permits a trust to deduct less than the full amount of its income distributions. By reason of these new provisions, a Canadian resident trust (other than a trust exempt from tax under subsection 149(1)) may also choose to have distributed income taxed at the trust level rather than the beneficiary level. Subsection 104(13.1) provides the mechanism for a trust to designate to its beneficiaries their respective shares of that portion of the trust's actual income distributions which has not been deducted in computing its income for the year. Such designated amounts are deemed not to have been paid or payable in the year by the trust for the purposes of subsections 104(13) and 105(2), with the result that such amounts will neither be deductible to the trust nor taxable in the hands of the beneficiaries.
Similar comments also appear in paragraph 4 of Interpretation Bulletin IT-342R and paragraph 20 of Interpretation Bulletin IT-381R2.
Paragraph 212(1)(c) of the Act provides, in part, that every non-resident person shall pay Part XIII tax on every amount that a trust resident in Canada pays to that person to the extent that the amount would, if that person were resident in Canada, be included in computing the income of that person under subsection 104(13) of the Act. In the situation where a testamentary trust resident in Canada has properly designated amounts in a year in respect of its beneficiaries pursuant to subsection 104(13.1) of the Act, it is our opinion that the amounts so designated in respect of the trust's non-resident beneficiaries will not be subject to withholding tax under paragraph 212(1)(c) of the Act.
As indicated in paragraph 21 of Information Circular 70-6R2 dated September 28, 1990, this opinion is not a ruling and accordingly, it is not binding on Revenue Canada.
Yours truly,
for Director
Manufacturing Industries, Partnerships
and Trusts Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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