18 April 1990 Income Tax Severed Letter HBW 4000-3 HBW 4125-U3-1

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.

We are writing in reply to your letter dated March 21, 1990, concerning the tax treatment of Canadian Government Annuities. The following comments may be of come assistance.

• 1. Under domestic law the taxable portion of an annuity (i.e. generally the actual annuity less the capital element) paid to a non-resident of Canada is subject to a 25% withholding tax. Paragraph 2(b), Article 18 of the Canada-United States Income Tax Convention reduces this withholding tax to 15%. The United States would also have a right to tax the annuity but must provide a foreign tax credit for Canadian taxes withheld, thus eliminating double taxation.
• 2. Where the annuity was in respect of a contract entered into before June 25, 1940, with the Government of Canada, all or a portion of the annuity may be exempt from Canadian income tax. Any portion of such an annuity not taxable in Canada would also be exempt from tax in the United State's in accordance with paragraph 2(b), Article 18 of the treaty. If this is the case, which we cannot determine from your letter, you must submit a claim for a refund of withholding taxes on form NR7-R. Paragraphs 68 and 71 through 75 of Information Circular 77-16R3 explains the procedure and is enclosed along with form NR7-R for your reference. A copy of this letter and supporting documentation as to when the contract was purchased should be submitted with the NR7-R. The Canadian payer should be contacted to ensure correct withholding procedures are followed in the future.

We trust you will find this to your satisfaction.