More information on forms NR301, NR302, and NR303

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More information on forms NR301, NR302, and NR303

Information for payers

Information for payers and non-resident payees

Information for payers

Q1. What steps, if any, does the payer of an amount subject to Part XIII tax have to take to ensure the completeness and accuracy of the information used to confirm eligibility for tax treaty benefits and to establish a withholding rate?

A1. The payer should review the information a non-resident provides on Form NR301, NR302, or NR303, or in another format, to make sure there is enough information there to support that the non-resident is eligible for tax treaty benefits on the income being paid.

If the payer knows or has reasonable cause to believe that the information on the form is incorrect or misleading, or it has been provided without knowing or considering the facts of the situation, the payer should question the information given and look at other information received from the non-resident, or that is known about the non-resident.

Q2. If the payer gets the declaration form or takes the necessary steps to otherwise get and review the information needed to reduce the withholding tax to a tax treaty rate, would relief from penalties and interest be considered under subsection 220(3.1) where the amount of Part XIII tax withheld is insufficient?

A2. If the CRA determines that not enough Part XIII tax has been withheld on a payment to a non-resident, an assessment (including interest) can be issued to the payer, the non-resident recipient, or both. It can also be issued to an agent of the payer or the non-resident payee. If an assessment of tax is issued to the payer or an agent/intermediary, the amount assessed is also subject to a penalty.

You can ask for penalty/interest relief under subsection 220(3.1) by writing to the tax services office or by submitting a completed Form RC4288, Request for Taxpayer Relief. For details on what you need to support your request, see Information Circular IC07-1, Taxpayer Relief Provisions.

One of the factors in deciding whether to grant relief is whether a taxpayer has exercised a reasonable amount of care. Therefore, the payer's effort to determine and apply the correct tax rate is important. Collecting the appropriate form or the equivalent information (that is, a written declaration by the non-resident of beneficial ownership, residency, and eligibility for tax treaty benefits) will support the payer's effort to determine and apply the correct tax rate.

Q3. If the payer had the non-resident complete the draft form because the final form was not out yet, can the payer continue to use that information to apply the tax treaty rate on payments subject to Part XIII tax?

A3. Draft forms NR301, NR302, and NR303 were posted on the CRA Web site before they were officially released. A payer may have asked a non-resident to fill out the draft version of one of these forms. If so, the payer can continue to use the information on that completed form to apply the treaty tax rate on payments subject to Part XIII withholding tax until the expiry date of the draft form (the form expires when there is a change in eligibility for treaty benefits, or a change in the effective rate of withholding, or three years from the date it was signed, whichever is earlier).

Q4. In some situations a payee may refuse to complete Form NR301. Will the CRA continue to accept the name and address of the taxpayer as being enough evidence that the taxpayer is the beneficial owner of the payment even if the payee does not provide the payer with a completed Form NR301?

A4. Completing Form NR301 is not mandatory. However, if a non-resident refuses to provide certification of beneficial ownership, residency, or eligibility for treaty benefits after being asked to do so by a payer, the full statutory rate should be withheld, under the assumption that treaty benefits do not apply.

There could be many reasons why the payee does not return the form to the payer or does not reply to the payer. This is not the same as a refusal to complete the form. The payee may not be eligible for treaty benefits, or he or she may be eligible for treaty benefits but not have received or read the correspondence. Therefore, unless the form was requested by the payer in order to resolve conflicting information, the payer may want to take more steps to determine if treaty benefits apply.

Q5. Why would it be beneficial for individuals who are residents of the United States to fill out Form NR301, when individuals resident in the United States will always be qualifying persons under the Limitation on Benefits article of the Canada–United States tax treaty?

A5. An individual resident in the United States will always be a qualifying person under Article XXIX A (Limitation on Benefits) of the Canada–United States income tax treaty. However, by completing Form NR301, a payee confirms that he or she is the beneficial owner and an individual who is a resident of the United States. Written confirmation of these facts provides assurance to the payer, because the payee is an active participant in the payer's determination of the withholding tax rate. This should reduce instances of non-resident payees providing insufficient or misleading information to payers.

Individuals who are not sure of their residency can refer to Income Tax Folio S5-F1-C1, Determining an Individual’s Residence Status, , or use either Form NR73, Determination of Residency Status (Leaving Canada), or Form NR74, Determination of Residency Status (Entering Canada), to ask for help from the CRA.

Q6. Is having the word “Corporation” included in a name and a United States address sufficient for a non-resident to warrant a reduced tax treaty rate?

A6. Not all corporations with an address in the United States will be entitled to treaty benefits under the Limitation on Benefits article in the Canada–United States income tax treaty. Therefore, the CRA recommends that the payer get a completed Form NR301 or similar information from the payee before applying a reduced tax treaty rate.

Q7. When would a payer have reason to believe that a U.S. corporation is subject to the limitation on benefits provisions of the Canada–United States tax treaty?

A7. Refer to Article 25 of the Protocol Amending the Convention Between Canada and the United States on the Department of Finance Canada Web site. This is the amendment to Article XXIX A (Limitation on Benefits) of the Canada–United States income tax treaty.

Under Article XXIX A, a qualifying person is entitled to all benefits of the treaty, and a non-qualifying person may be entitled to benefits on specific income if certain conditions are met.

The article uses a list to define “qualifying person.” You may be able to identify that a payee is a qualifying person by referring to the list. For example, a company or trust whose principal class of shares or units (and any disproportionate class of shares or units) is primarily and regularly traded on one or more recognized stock exchanges is listed as a qualifying person.

Also if the company has an exemption letter or number issued by the CRA in respect of paragraph 2 of Article XXI, you would generally not have any reason to suspect the corporation is subject to the limitation on benefits provision.

Unless you know from information you have on file that the U.S. corporation fits into one of the categories in the list of qualifying persons, you have reason to question whether the corporation is entitled to treaty benefits.

Q8. What is trust income? Does the payer always need Form NR301, NR302, or NR303 or equivalent information to reduce the withholding tax on payments of trust income?

A8. Payments from an estate or trust to a non-resident beneficiary are taxed as trust income regardless of the source from which the trust or estate got the income. Therefore, interest income that may be exempt from tax under the Income Tax Act that is paid to a trust and then paid out to a non-resident will be taxable as trust income; the withholding tax rate of which is 25%. Similarly, dividends paid to a trust and then distributed to a non-resident beneficiary will be taxable as trust income. A lower withholding tax rate will only apply to amounts paid or credited by a trust or estate to a non-resident beneficiary when a tax treaty specifically provides for a reduced withholding on such amounts (for example, the rate in the Canada–United States income tax treaty is 15%). The income type to be entered on Form NR301, NR302, or NR303 is trust income. However, this does not include a deemed dividend paid by a SIFT trust—to which subsection 104(16) applies. Such a deemed dividend keeps its status as a dividend.

As long as the income of a trust is payable to a non-resident and that non-resident is entitled in the year to require the payment to be made, the income is considered paid or credited to the non-resident and is subject to withholding tax. It is therefore recommended that the payer get Form NR301, NR302, or NR303, whichever applies, or the information asked for on the applicable form.

There is a 15% withholding tax under Part XIII.2 on amounts paid or credited to a non-resident investor that are not otherwise subject to tax under Part I or Part XIII. Since this 15% withholding tax is provided for in the Income Tax Act rather than in a tax treaty, there is no need to get Form NR301 completed in this situation.

A person cannot use Form NR301 to claim treaty benefits under Article XXI of the Canada–United States income tax treaty. For exemptions from tax under Article XXI, a non-resident has to apply to the CRA for a letter of exemption. See Publication T4016, Exempt U.S. Organizations – Under Article XXI of the Canada–United States Tax Convention. Trust income paid to an organization that holds a letter of exemption issued by the CRA under paragraph 1 of Article XXI of the Canada–United States income tax treaty is exempt from withholding tax. Paragraph 1 provides an exemption for all income to the extent that the income is exempt from tax in the United States. However, an organization that holds a letter of exemption issued by the CRA under paragraph 2 of the same article is not exempt from tax on trust income. This is because paragraph 2 only provides an exemption for interest and dividend income, not trust income.

Q9. How do I report a payment to a partnership or a hybrid entity that is subject to either Part XIII tax or the withholding tax under Regulation 105? Forms NR302 and NR303 show the names of the partners and shareholders. Do I issue a slip to each partner and shareholder?

A9. Complete one NR4 slip for payments subject to Part XIII tax and one T4A-NR slip for payments made to the partnership that are subject to withholding tax under Regulation 105 of the Income Tax Regulations. Do the same for payments to hybrid entities. The partnership will divide its income and the withholding tax among its partners and may have to file a T5013 information slip for each partner.

Q10. Can a payer have "equivalent information" to the information on forms NR301, NR302, and NR303 without having a certification and undertaking on file (for example, information equivalent to the information in the fill-in boxes but without the certification and undertaking from Part 8 on Form NR301, Part 6 on Form NR302, or Part 7 on Form NR303)?

A10. Since the forms are not a legislative requirement, a written certification or undertaking is not mandatory. We prefer that the NR forms are used as each part to be completed shows the type of information needed. However, the same information can be provided in some other way but should include written confirmation of beneficial ownership, residency, and eligibility for treaty benefits.

The completed Form NR301, NR302, or NR303 should be signed. Otherwise there is doubt as to whether the information is true and correct and whether the form was completed by the non-resident or an authorized person.

However, when a payer or intermediary is, for example, merging the information on the forms into its own in-house forms that also collect other information, or is arranging to collect the information from multiple sources, we do not mean to imply that this other written confirmation would not be acceptable.

Q11. If an audit were to be done, what information would the CRA look for if Form NR301 was not filled out?

A11. Ideally the CRA would look for written confirmation of beneficial ownership, residency, and eligibility for treaty benefits. However, the CRA would also look at the payee name, address, and whatever information is on file to determine whether or not enough tax was withheld before deciding on the next step. The next step could be an assessment or it could be a decision to collect additional information.

Q12. What type of Know Your Client (KYC) documents would the CRA consider as meeting the alternative documentation standard?

A12. KYC documents alone would generally not be considered equivalent information. To apply treaty benefits, you need to know whether the person you are paying is the beneficial owner of the income, where that person resides for tax purposes, and whether the person is eligible under the particular treaty to receive treaty benefits.

Q13. If a payer collects all the information on Form NR301, NR302, or NR303, would he or she need to physically receive the forms from his or her clients? Can electronic signatures be used on the NR forms?

A13. Scanned or faxed copies or Microfiche, of the original signed Form NR301, NR302, or NR303 are acceptable. Electronic signatures can be used on forms NR301, NR302, and NR303, assuming the electronic signature is a representation of the person's original signature (that is, the person physically signs on an electronic device). This is not the case for all CRA forms.

Q14. If firms have not yet collected all their client documents prior to applying a reduced withholding rate,will the CRA pressure the custodians to default to the maximum tax rate for customers before they have had ample time to comply?

A14. The CRA recommends collecting the forms or equivalent information, but it is up to each withholding agent or intermediary to determine whether it will default to the maximum rate before receiving all of the required information or whether it will accept the risk of reducing the withholding tax to a tax treaty rate with less than the recommended information. The CRA can only issue an assessment when not enough tax has been withheld. Since the forms are not mandatory, there is no penalty for not having the forms on file.

Q15. Is there a grace period to get the proper documents on file for new clients (non-resident payees)?

A15. The CRA cannot offer a grace period during which insufficient tax can be withheld. The Part XIII withholding tax is a final tax liability. Therefore it remains up to the payer to decide whether it wants to take the risk associated with withholding tax at the tax treaty rate with only the information available at that time. When the payer takes this risk and later determines that not enough tax was withheld, the payer should remit the remaining tax to the CRA.

Q16. How long do forms NR301, NR302, and NR303, or the equivalent information, have to be kept for audit purposes?

A16. The information has to be kept for six years from the end of the last tax year to which it relates.

Information for payers and non-resident payees

Q1. What is a foreign tax identification number?

A1. A foreign tax identification number is a number non-resident taxpayers use when reporting their income in their country of residence. Some countries do not issue tax identifier numbers. So, if the “Foreign Tax Identifier” field is blank on an otherwise completed form, the payer can consider the form complete. However, most non-residents will have an identifier, and the payer should ask them to provide it.

Q2. Will Form NR301 be considered valid if the non-resident completes the mailing address information with a care of address or a post office box?

A2. Yes, Form NR301 will be considered valid if a non-resident completes the mailing address information with a care of address or a post office box, since the payer does not rely on the mailing address to determine the payee's country of residence. The payer instead relies on the field called “Country of residence for treaty purposes” in Part 6 on page 1 of the form. This field has to be properly completed by the payee. An entry is this field like “see above” is not acceptable.

The CRA recommends that a taxpayer be asked to provide a revised Form NR301 if his or her mailing address has changed to a different country. A change in mailing address from one country to another indicates that the country of residence for treaty purposes may have changed.

Q3. For requests for refunds of non-resident tax on income paid in 2011 or before, is the latest version of Form NR7-R, Application for Refund of Part XIII Tax Withheld, required? Will an earlier version be accepted?

A3. The latest version of Form NR7-R should be used since it has been updated to accommodate the requirements of the Limitation on Benefits provisions introduced into the Canada–U.S. tax treaty by the Fifth Protocol. If an earlier version is used when the individual, corporation, or trust is applying for a refund, then Form NR301 would be required.

Q4. If there are multiple beneficial owners for a simple trust account, do you need a form on file for each beneficial owner or just for the trust that is registered under its own tax identification number?

A4. Generally, a Canadian trust is a person under the Income Tax Act and under Canada's tax treaties. A non-resident trust would also generally be a person if taxed as a person under the tax rules of the country of residence. In these circumstances we would generally consider the trust to be the beneficial owner of the income and eligible for treaty benefits on the income it receives. If this is the case, the trust would complete Form NR301.

Q5. Will individual non-residents that do not have a physical address on file but have an Army Post Office (APO) address be eligible for the 15% rate on dividends under the Canada–United States tax treaty?

A5. Yes. Get a Form NR301 from the individuals or consult the exception on the CRA Web site for individuals, for whom you have complete permanent addresses that are not post office boxes or care of addresses.

Regarding that exception, treat an APO address for U.S. military personnel as an address in the United States rather than as a post office box. Treat military addresses for military personnel from other countries as addresses in the country they are from, as long as you can identify the country.

Q6. For a corporate account where corporate resolutions and/or certificates of incorporation from U.S. jurisdictions have been obtained, and the payer has no reason to believe that the limitation on benefits provisions in the Canada-United States tax treaty apply, will the information the payer has be considered "recent and equivalent" to the information on Form NR301?

A6. No, equivalent information is written confirmation of beneficial ownership, residency, and eligibility for treaty benefits.

Go to Residency of a corporation for related information on corporations and residency.

Q7. Why isn't a completed Internal Revenue Service Form W-9, Request for Taxpayer Identification Number and Certification, enough for the Canadian payer to apply the withholding tax rate specified in the Canada–U.S. tax treaty?

A7. The CRA recommends that payers or intermediaries collect the information on forms NR301, NR302, and NR303 since the information on beneficial ownership, residency, and eligibility for treaty benefits is generally the information the payer or intermediary will need to establish that a tax treaty rate applies.

The IRS Form W9 is not sufficient because it is intended only for U.S. persons (citizens or other U.S. persons as defined on the form) and does not address beneficial ownership, residency, and eligibility for treaty benefits under the Canada–U.S. tax treaty.

Q8. When the payment is made to a joint account, what information should be collected?

A8. For payments to joint account holders, each account holder should complete the applicable form.

If the account holders are resident in the same country or in separate countries with the same tax rate, the payer applies the appropriate rate. If they are resident in separate countries, with different tax rates, the payer can apply a composite rate depending on the ownership percentages of the income in the account.

When a payer applies a composite rate, he or she should keep the information on ownership percentages on file in case we ask to see it. Or, the payer could withhold at the statutory tax rate of 25% and the account holder could apply for a refund from the CRA by submitting Form NR7-R, Application for Refund of Part XIII Tax Withheld.

If one account holder is a Canadian resident and the other is not, and the payer withholds Part XIII tax on the full amount, the Canadian resident includes his or her part of income and his or her part of tax withheld on his or her income tax return (report the full amount paid and the tax withheld on an NR4 slip).

Q9. On Form NR303, the non-resident can only tick “corporation” or “trust.” Are corporations and trusts the only types of legal entities?

A9. A hybrid entity can be considered a corporation or a trust for Canadian tax purposes.

The Canada–United States income tax treaty is the only treaty that Canada has signed under which a person (who is a resident of the United States) can be considered to derive income that flows through a hybrid entity (Article IV, paragraph 6 of the treaty). Therefore, to calculate Part XIII tax on an amount payable to a hybrid entity, use the treaty tax rate for members or shareholders who are residents of the United States and the statutory withholding rate of 25% for all other members (including residents of Canada).

When completing Form NR303, the authorized person should make sure that he or she reads and understands paragraphs 6 and 7 of Article IV of the Canada–United States income tax treaty and that treaty benefits apply to the income earned.

Q10. Can a non-resident of Canada receiving royalty payments that are attributable to a permanent establishment in Canada use Form NR301 to assure the payer that no withholding tax under Part XIII is required?

A10. A non-resident of Canada receiving income normally subject to Part XIII withholding tax that is attributable to a permanent establishment in Canada cannot use Form NR301, NR302, or NR303 to prove to the payer that no withholding tax is required. Under regulations 805 and 805.1 of the Income Tax Regulations, a non-resident can ask for confirmation from the CRA that an amount will be considered to be attributed to a business carried on through a permanent establishment in Canada, and therefore reported on the non-resident's Canadian income tax return. Requests should be sent in the form of a letter to the applicable tax services office. The non-resident can then provide the letter from the CRA to the payer.

Q11. If a non-resident partnership or a limited liability company has many partners or shareholders and it is not practical to get a completed Form NR301, NR302, or NR303 from each one, can some just be included in Part II of Worksheet A or B of Form NR302 or in Part II of Worksheet A of Form NR303?

A11. If a partnership or a hybrid entity with non-resident partners or members has many partners or members and it is not practical to get a completed Form NR301, NR302, or NR303 from each one (for example, when a small share or amount of income is attributable to a particular partner or member that is itself another partnership or hybrid entity with many partners or members), it is acceptable to include them in Part II of Worksheet A or B of Form NR302 and in Part II of Worksheet A of Form NR303. In this way, the composite tax rate will be calculated, assuming no benefits apply to those partners or members.

The partnership can request a refund from the CRA using Form NR7-R, Application for Refund of Part XIII Tax Withheld, no later than two years after the end of the year in which an excess withholding is remitted.

Q12. The certification part of Form NR302 requires the partnership to collect a statement of Canadian residency for Canadian resident partners. Is there any particular form or format for this statement?

A12. Form NR302, Declaration of eligibility for benefits (reduced tax) under a tax treaty for a partnership with non-resident partners, provides for a reduction of the Part XIII withholding tax on income of a partnership that is allocated to Canadian resident partners that will report their share of partnership income on their Canadian income tax return. The certification part of Form NR302 requires the partnership to get a statement of Canadian residency for Canadian resident partners. A signed statement by the person or their authorized representative indicating the person is resident and taxable in Canada on their world income is preferable. However, similar statements or information obtained by the partnership from which it can be reasonably concluded that the partner will report the amount on a Canadian income tax return as a resident of Canada is also acceptable.

Note

Form NR302 cannot be used to support a reduction of Part XIII withholding tax on rental income if either the non-resident is making an election under section 216 to file a Canadian income tax return to report the rental income or there are Canadian resident partners.

Q13. Are forms NR301, NR302, and NR303 required by tax law?

A13. There is no provision in the Income Tax Act or in our tax treaties that specifies what information has to be collected before the withholding tax is reduced to a tax treaty rate. What is needed generally depends on individual facts and circumstances. The CRA can issue an assessment of tax, penalty, and interest when not enough tax has been withheld and remitted. The CRA recommends that payers or intermediaries collect the information requested on forms NR301, NR302, and NR303 since this information on beneficial ownership, residency, and eligibility for treaty benefits is generally the information the payer or intermediary will need to establish that a tax treaty rate applies. Exceptions to the CRA recommendation are posted on the CRA Web site.

With regard to the CRA recommendation, when a withholding agent or any intermediary in the chain of payments is responsible for deciding whether treaty benefits will be allowed for a particular payee at the withholding stage, that entity determines whether the recommended forms will be required, whether equivalent information will be accepted, and whether it will provide an agent/nominee certification as described in Information Circular 76-12, Applicable rate of Part XIII tax on amounts paid or credited to persons in countries with which Canada has a tax treaty, to the entity they receive payment from, supporting particular withholding rates.

Q14. What is the statute of limitations for the CRA to issue an assessment notice when no Part XIII tax was withheld from a non-resident or when not enough tax was withheld?

A14. There is no statute of limitations for Part XIII tax.

Q15. Is the Internal Revenue Service's Form W8Ben equivalent to CRA's NR301 form?

A15. No, the United States Internal Revenue Service's Form W8Ben does not give equivalent information to the CRA's Form NR301. Persons completing the W8Ben are not resident in the United States. By completing the W8Ben, they are certifying beneficial ownership and residency with respect to the treaty between the United States and their country of residence. For payments from Canada to that person, it is the treaty between Canada and that person's country of residence that may be applicable. The CRA's recommendation is that the payers gather written confirmation of beneficial ownership and residency and eligibility for treaty benefits under the treaty between Canada and the country of residence. This is what Form NR301, completed by the non-resident person, provides to the payer.

The completion of forms NR301, NR302 and NR303, is not mandatory and equivalent information can be gathered by collecting the information (on beneficial ownership, residency, and eligibility for treaty benefits) from multiple sources or by merging the requested information into in-house forms that also collect other information. Therefore, the form W8Ben, in combination with other written documentation kept by the payer (their written logic of their comparison of the particular two sets of treaties and separate certification of eligibility for treaty benefits or documentation that clearly shows, for example, the meeting of any limiting provisions in the treaty of the country of residence), could, as a whole, be considered equivalent information. As a stand-alone piece of information, the W8Ben is not equivalent to the NR301.

Q16. What form does a government entity complete?

A16. A government entity, such as a foreign government or agency, or the central bank of a foreign country, may be eligible under the Doctrine of Sovereign Immunity for an exemption from tax on dividends from passive investment received from residents of Canada. Interest from passive investment also qualifies but will generally already be exempt under the Income Tax Act. Exemption under the Doctrine of Sovereign Immunity is granted on a case-by-case basis, and the entity should have a Letter of Exemption issued by the CRA. These entities do not complete any of the NR301, NR302, or NR303 forms.

If the government entity does not have a Letter of Exemption or the withholding tax rate on the income type is not reduced under the Doctrine of Sovereign Immunity, then a tax treaty provision that is applicable to the income type and available to other residents of that country may reduce the withholding tax rate. The reduced rate would apply if the government entity is the beneficial owner of the income, is considered a resident under the tax treaty, and meets any other condition necessary under the particular treaty provision. Canada accepts that the government of a country (called a contracting state under the treaty), and any political subdivision or local authority thereof, is a resident of that country under our tax treaties. In addition, a few Canadian treaties have provisions that exempt interest and dividends that certain government entities receive from withholding tax under certain conditions.

In these cases, the NR301 is still not applicable to the government entity. Instead, the CRA recommends that the payer accept a certification from the entity of:

  • beneficial ownership
  • status as the government of a country or political subdivision or local authority thereof,
  • entitlement to treaty benefits, and
  • having met any conditions specified under the particular provision or elsewhere in the treaty for a reduction of the tax on the income being paid.

Q17. What forms must professional associations such as unions, homeowners associations, and unincorporated associations complete to provide the Canadian payer with proof that they are entitled to a reduction of Canadian Part XIII withholding tax pursuant to the terms of the Canada-U.S. Income Tax Treaty with respect to their Canadian source income?

A17. The form professional associations such as unions, homeowners associations and unincorporated associations must complete to provide the Canadian payer with proof that they are entitled to a reduced rate of Canadian withholding tax (pursuant to the terms of the Canada-U.S. income tax treaty with respect to their Canadian source income) depends on how the professional association was constituted (i.e., what type of entity is the professional association).

The following is given as guidance.

We are assuming the question does not include organizations referred to in Article XXI of the Treaty (who would have a Letter of Exemption from the CRA).

For entities where the type is not easily identified as one listed on the forms (NR301 - individual, trust, corporation, NR302 - partnership, NR303 - hybrid entity), the entity may or may not be entitled to the benefits of the Treaty. If not entitled, then there is no form to complete.

Corporations

The professional association could be a corporation and should complete Form NR301.

According to paragraph 2 of Interpretation Bulletin IT- 343R, Meaning of the Term Corporation dated September 26, 1977:

A corporation is an entity created by law having a legal personality and existence separate and distinct from the personality and existence of those who caused its creation or those who own it. A corporation possesses its own capacity to acquire rights and to assume liabilities, and any rights acquired or liabilities assumed by it are not the rights or liabilities of those who control or own it. As long as an entity has such separate identity and existence, the Department will consider such entity to be a corporation even though under some circumstances or for some purposes the law may ignore some facet of its separate existence or identity.

Partnerships

An unincorporated professional association that carries on a business for profit may be a partnership. See Interpretation Bulletin IT-90 What is a Partnership on the CRA Web site for more information. A partnership should complete Form NR302.

Inter vivos trust

Non-profit organizations whose purpose is to provide dining, recreational, or sporting facilities to members may be deemed to be an inter vivos trust under subsection 149(5) of the Income Tax Act. An inter vivos trust should complete Form NR301.

Professional association constituted in the United States (an unincorporated entity, not an inter vivos trust, and not operated for profit)

A professional association constituted in the United States (operated for any purpose except profit) that is not a corporation, trust, partnership, or hybrid entity is only entitled to the benefits of the Treaty if it is a resident of the United States within the meaning of Article IV of the Treaty and a qualifying person within the meaning of Article XXIX-A (Limitation on Benefits Article) of the Treaty.

Under Article IV of the Treaty, a not-for-profit organization constituted in the United States and that is generally exempt from income taxation in the United States because it is a not-for-profit organization will be a resident of the United States. The term “not-for-profit organization” is defined in Article XXIX-A of the Treaty to mean an entity created or established in a state that is generally exempt from income taxation in that state because of its not-for-profit status. The term includes private foundations, charities, trade unions, trade associations, and similar organizations. Article XXIX-A of the Treaty provides that a not-for-profit organization that is resident in the United States is a qualifying person, and thus entitled to the benefits of the Treaty if more than half of the beneficiaries, members, or participants in the organization are qualifying persons.

Therefore, a professional association that is constituted in the United States (operated for any purpose except profit and is not a corporation, trust, partnership, or hybrid entity) and that receives Canadian source income that is entitled to a reduced Canadian withholding tax rate pursuant to the terms of the Treaty should provide written certification of the facts the Canadian payer needs to know to determine if Treaty benefits apply. Generally, this information would include the same information requested by Form NR301, (all fields and a similar certification) and their entity type (e.g., unincorporated non-profit association). In addition, the professional association must provide the Canadian payer with the following information:

  • proof that it was constituted in the United States as a non-profit organization; proof that by reason of its nature as a non-profit organization, it is generally exempt from income taxation in the United States; and
  • certification that
    • more than half of the beneficiaries, members, or participants in the organization are qualifying persons within the meaning of Article XXIX-A of the Treaty; and
    • the association has completed Form NR301 or collected equivalent information from each person that is a beneficiary, member, or participant in the association, unless an exception listed on the CRA Web site applies.

A professional association constituted in a country other than the United States but with which Canada has a tax treaty in force (that is an unincorporated entity, not an inter vivos trust, and is not operated for profit).

A professional association (operated for any purpose except profit) that is not a corporation, trust, partnership, or hybrid entity is only entitled to tax treaty benefits if the following conditions are satisfied:

  • the association is a resident of a country with which Canada has a tax treaty in force (usually refer to Article III and IV of the applicable treaty for the definitions of a ‘person’ and ‘resident’ );
  • a tax treaty benefit (i.e., a reduced rate of Canadian Part XIII withholding tax) applies to the Canadian source income paid to the professional association (see the appropriate article of the applicable treaty); and
  • the association is not denied tax treaty benefits under any applicable provisions in the treaty that limit entitlement to treaty benefits.

Generally, the association will likely meet the criteria in the first bullet above if it was constituted in the treaty country and the treaty indicates that a ‘person’ includes a ‘body of persons’, and the association is ‘liable to tax’ in that country (i.e., subject to tax on its worldwide income) however legislation in the treaty country exempts it from paying any tax on the basis that it is a not-for-profit association.

A professional association (operated for any purpose except profit and is not a corporation, trust, partnership, or hybrid entity) that is, in fact, entitled to receive tax treaty benefits under a treaty should provide written certification of the facts that the Canadian payer needs to know to determine if treaty benefits apply. Generally, this information would include the same information requested by Form NR301 (all fields and a similar certification) and their entity type (e.g., unincorporated non-profit association). In addition, the professional association must provide the Canadian payer with the following information:

  • proof that it was constituted in the particular treaty country as a non-profit organization;
  • proof that because of its nature as a non-profit organization, it is generally exempt from income taxation in the treaty country;
  • the applicable treaty provision that provides a reduced withholding tax rate; and
  • certification that it has examined the provisions of the treaty and there is no provision therein that limits treaty benefits, or if such limitations exist, a written explanation of how the association meets the criteria to be eligible for the benefits of the treaty.

A non-resident non-profit association will generally not be exempt from Canadian tax on income received from Canada; however, it may be entitled to a reduced rate as any other resident of the treaty country. Check the applicable tax treaty.

Q18. I received a letter from my financial institution telling me that I need to give them a letter of exemption from the CRA for them to apply a full exemption of withholding tax. How do I get a letter of exemption?

A.18 The CRA issues letters of exemption to organizations that are resident in the United States and are exempt from withholding tax under Article XXI of the Canada-United States tax treaty. You can find the information you need to get a letter of exemption in paragraph 78 of Information Circular 77-16R4 Non-Resident Income Tax.

Send your request for a letter of exemption to the International and Ottawa Tax Services Office (IOTSO), Non-Resident Withholding Division at P.O. Box 9769, Station T, Ottawa, ON K1G 3Y4. CRA publication T4016, Exempt U.S. Organizations - Under Article XXI of the Canada - United States Tax Convention contains a list of organizations that have received letters of exemption.

Note

Some financial institutions may have told clients who reside in the United States and have Individual Retirement Arrangement accounts (IRA’s) to apply for a letter of exemption. If you are an IRA account holder resident in the United States, your financial institution or organization may have asked for a letter of exemption specifically for your IRA. As the situation may have changed, you should verify with your financial institution or organization that you still need to write to the CRA and request a letter of exemption before you do so.

Forms and publications

Date modified:
2015-07-09