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: Whether IRS assessment on U.S. estate tax return of XXXXXXXXXX would impact on the credit granted by Revenue Canada for such tax
Position: No
Reasons: It is because the credit was based on the U.S. estate tax which would have been paid if the deceased taxpayer were not a U.S. citizen. Such U.S. estate tax is much lower than the U.S. estate assessed by IRS. So the assessment does not affect the credit Canada granted
June 17, 1998
Carolyn Ritchie, Manager International Section
T1 Adjustments Section S. Leung
Individual Returns and Payments 957-2115
Processing Directorate
Attention: Geraldine Vanderspank
981156
Article XXIX B of the Canada-U.S. Income Tax
Convention - XXXXXXXXXX
We are writing in reply to your memorandum of May 1, 1998 in which you requested our advice in connection with an enquiry from XXXXXXXXXX with respect to the credit provided under Article XXIX B of the Canada-U.S. Income Tax Convention (the “Convention”) for U.S. estate tax imposed on the late XXXXXXXXXX (the deceased taxpayer).
First of all, we would like to point out that the assessment of U.S. estate tax is the responsibility of Internal Revenue Services of the United States (IRS). Revenue Canada’s role is to ensure that the amount of the U.S. estate tax shown on the U.S. estate tax return is reasonable for the purposes of providing a credit for such tax in accordance with Article XXIX B of the Convention and to ensure that, if the deceased taxpayer was a U.S. citizen, the credit that Canada provides would not exceed the amount of U.S. estate tax that would have been payable had the deceased taxpayer not been a U.S. citizen. In this regard it should be noted that, as mentioned in our previous memorandum to you, the amended U.S. estate tax return (Form 706) filed by the estate of the deceased taxpayer may not be correct in that not all the amount of Canadian tax payable of U.S.$XXXXXXXXXX would be available for a foreign death tax credit in the U.S. because the U.S. credit would only be granted for Canadian taxes paid in respect of property of the estate situated in Canada.
We have perused the photocopies of certain documents issued by IRS to the estate of the deceased taxpayer that you had forwarded us. It appears that IRS did not allow as a deduction in computing taxable estate that portion of Canadian taxes paid in respect of U.S. situs property. We do not find this approach unreasonable as it appears that IRS has assumed that Canada would provide a tax credit against such tax. Also, the amount of the Canadian tax payable of Cdn.$XXXXXXXXXX that IRS used in providing a foreign death tax credit against the U.S. estate tax is different from the total amount of Canadian tax payable of Cdn.$XXXXXXXXXX (before the credit for U.S. estate tax) because the IRS has probably subtracted from the Canadian tax payable that portion of such tax on investment income of Cdn.$XXXXXXXXXX which would not be considered by IRS as foreign death tax paid. The difference has apparently been allowed as a deduction in computing the taxable estate of the deceased taxpayer for U.S. estate tax purposes.
As to the question whether double taxation arises as a result of the action taken by IRS, it should be noted that as stated in the Technical Explanation of the 1995 Protocol, the purpose of Article XXIX B of the Convention is to better co-ordinate the operation of the death tax regimes of the two Contracting States. It also states that Article XXIX B also contains provisions designed to alleviate death taxes in certain situations. Nothing has been said that the purpose of Article XXIX B is to eliminate double taxation. For a person who is a U.S. citizen resident in Canada, there could be double taxation because Canada is only required to grant a credit for U.S. estate tax to the extent of such tax that would have been paid if the person were not a U.S. citizen.
In summary, the determination of the U.S. federal estate tax of the deceased taxpayer on Form 706 is the responsibility of IRS. In this case the amount of U.S. estate tax assessed by IRS does not have any impact on the credit that Canada has provided under paragraph 6 of Article XXIX B of the Convention. This is because the Canadian credit was granted on the basis that the U.S. estate tax that the deceased taxpayer had to pay in respect of U.S. situs property if the deceased taxpayer were not a U.S. citizen as calculated by Revenue Canada was much lower than the amount of the U.S. estate tax assessed by IRS. As a result, the credit as calculated in our previous memorandum regarding the deceased taxpayer is correct in spite of the above-noted assessment of IRS to the estate tax return of the deceased taxpayer. There should not be any additional Canadian tax liability or refund as a consequence of such assessment of IRS.
for Director
Reorganization and International Division
Income Tax Rulings
and Interpretations Directorate
Policy and Legislation Branch
P.S.: For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on the Department’s mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their database. The severing process will remove all material that is not subject to disclosure including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version or they may request a copy severed using the Privacy Act criteria which does not remove client identity. Request for this latter version should be made by you to Jackie Page at (613)957-0682. The severed copy will be sent to you for delivery to the client.
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