CRA finds no penalty under s. 162(7) for failure to withhold or remit Pt. XIII tax on a s. 214(16)(a) deemed dividend

Interest accrued but was not paid by Canco during its 2024 taxation year on a loan from a non-resident corporation (NRco). Because such interest was not deductible by virtue of s. 18(4), it was deemed by ss. 214(16)(a) and (17)(a) to be paid as a dividend on December 31, 2024. Canco did not remit the Part XIII tax (at a treaty-reduced rate of 5%) until March 2025, shortly after issuing a Form NR4 to NRco for the deemed dividend.

CRA noted that the s. 162(7) penalty was not restricted to failure to timely file a return and also applied to failure to comply with a duty or obligation imposed under the ITA, except where another provision (subject to exceptions), set out a penalty for the failure. There was no penalty under s. 227(8) for the failure of Canco to withhold from the deemed dividend because s. 227(8.5)(a) indicated that this penalty did not apply to an s. 214(16)(a) dividend in these circumstances of no relevant amount having been paid or credited to the non-resident (NRco). The s. 227(9) penalty also was inapplicable because there was no failure to remit an amount which had been withheld (there was none). Did the absence of a penalty under s. 227(8) or (9) for failure to withhold or remit under s.215 mean that there was an s. 162(7) penalty for such failure?

CRA essentially indicated that the exclusion of a penalty under s. 227 evinced a Parliamentary intent that there also should be no penalty under s. 162(7).

CRA also indicated that, pursuant to s. 227(8.3)(b), interest on the Part XIII tax was required to be calculated for the period from the (December 31) day on which it was required to be deducted or withheld to the day of payment of such tax to the Receiver General.

Neal Armstrong. Summaries of 9 October 2025 APFF Roundtable, Q.2 under s. 162(7), s. 227(9), s. 227(8.5)(a) and s. 227(8.3)(b).