1 August 1996 External T.I. 9622125 - DISPOS OF FARM INT UPON THE BREAKDOWN OF MARRIAGE

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 required on the equalization payment & what is the extent of the lawyer's liability

Position:

issue referred to ITO as the liability is a question of fact

Reasons:

While an equalization payment is not alimony & thus not subject to n/r withholding, the referral was made because the lawyer's liability as well as that of the non-resident depends on the facts -Some concern was expressed that the non-resident may not have reported any disposition arising from the transfer, if any, of her interest in the family farm, to her spouse, notwithstanding that section 73(1) provides a rollover

A. Humenuk
XXXXXXXXXX 962212

Attention: XXXXXXXXXX

August 2, 1996

Dear XXXXXXXXXX:

Re: Equalization Payment made to a non-resident

We are replying to your letter of June 18, 1996, in which you ask whether non-resident withholding tax or a clearance certificate is required in respect of an equalization payment made to a resident of Switzerland under the Family Law Act of Ontario.

In the situation you describe, your client and her former spouse were operating a farm in Ontario. As a result of the breakdown of their marriage, they signed a separation agreement in XXXXXXXXXX under which your client was to receive $XXXXXXXXXX as an equalization payment under the Family Law Act of Ontario, payable in two instalments. Shortly after signing the separation agreement, your client returned to her native home in Switzerland. You are holding the second instalment of that equalization payment and would like to know the extent of your liability in respect of any income tax that may be payable by your client as a non-resident of Canada.

As the issuance of a clearance certificate described in section 116 of the Act is administered by the International Tax Services Office, we have forwarded a copy of your correspondence to that office in order that they might advise you as to whether a clearance certificate is required. It should be noted that no assurance can be given as to an individual's liability under section 116, 212, subsection 215(6) or 227(8) of the Act for the income tax payable by a non-resident without a full disclosure of all the relevant facts of the particular situation, including the names, addresses and social insurance number or tax account number of the persons involved in the transaction. If you wish, you may contact the Director of that office, Mr. M. Quebec at (613) 526-6477. The address for the International Tax Services Office is 2540 Lancaster Road Ottawa, Ontario, K1A 1A8.

We trust our comments will be of assistance to you.

Yours truly,

John F. Oulton
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
c.c. Mr. M. Quebec, International Tax Services Office