8 July 2010 External T.I. 2010-0367571E5 - Interest Income- Overseas Bank Account

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.

Principal Issues: Whether interest accrued in an overseas bank account held by Canadian resident taxpayer is to be reported for Canadian tax purposes, where the taxpayer may not have contributed to the funds in the account.

Position: It is a question of fact.

Reasons: General comments provided.

XXXXXXXXXX
									2010-036757
July 8, 2010							V. Srikanth

Dear XXXXXXXXXX :

Re: Interest income accrued in an overseas bank account

This is in response to your fax dated May 17, 2010, wherein you requested our views on the reporting of interest income accruing to a Canadian resident (the "Individual"), in a bank account held outside Canada in the Individual's name.

Specifically, you would like our view on whether, from the time the Individual became a resident of Canada, interest income accruing in a bank account held in England (the "Account"), will have to be reported for Canadian tax purposes. In the situation described, the Individual asserts that the funds in the Account were contributed by the Individual's father, who does not live in Canada.

Our Comments

Written confirmation of the tax implications inherent in actual proposed transactions is given by this Directorate only where the transactions are the subject of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, entitled Advance Income Tax Rulings. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on our website at http://www.cra-arc.gc.ca. Your request was not submitted as an advance income tax ruling request and does, in fact, appear to be an actual situation. As such, the enquiry should be addressed to the relevant Tax Services Office so that a factual determination can be undertaken. However, as stated in paragraph 22 of IC 70-6R5, we do provide written opinions on general enquiries which are not advance income tax rulings. We are, accordingly, prepared to provide you with the following comments.

Pursuant to sections 2 and 3 of the Income Tax Act (the "Act"), Canadian residents are taxable on their worldwide income. Hence, any income of a Canadian resident, whether from a source located in Canada or not, is taxable under the Act, subject to the application of a tax treaty to which Canada is party.

In this regard, paragraph 12(1)(c) of the Act provides that there shall be included in computing the income of a taxpayer from a business or property, any amount received or receivable by the taxpayer in the year (depending on the method regularly followed by the taxpayer in computing his income) as, on account of, in lieu of payment of or in satisfaction of, interest to the extent that the interest was not included in computing his or her income for a preceding taxation year.

Therefore, subject to the provisions of a tax treaty to which Canada is party, any interest income received or receivable by a Canadian resident must be included in computing his or her income under the Act pursuant to paragraph 12(1)(c) (or subsection 12(4) where the Canadian resident holds an interest in an investment contract). It is to be noted that the amount that must be so included in computing the taxpayer's income is the amount received or receivable by the taxpayer as interest, without reference to any credit, tax or deduction to which this amount might be subject in a foreign tax jurisdiction.

Accordingly, without substantiating evidence to the contrary, interest income earned in bank accounts held in other countries by a Canadian resident is to be reported for Canadian tax purposes by the Canadian resident.

However, if it can be established, with substantiating documentation that a Canadian resident held the funds in an account in another country for a relative in the capacity as an agent or 'in-trust', the comment in the preceding paragraph may not be applicable. In Canada, generally, the question of whether or not an agency relationship exists is determined under the common law (or the Civil Code for the province of Quebec) and can be a complex matter. The CRA has not established guidelines to determine whether an agency relationship exists. Except for unusual circumstances, the CRA recognizes that for the purposes of the Act, all the transactions of an agent made on behalf of a principal are the transactions of the principal and any income earned by the agent on behalf of the principal, is income of the principal. 'In-trust' accounts are, generally, accounts set up for the benefit of someone, and, in Canada, normally, the applicable provincial law has to be examined in determining whether such an in-trust account is a trust. An in-trust account can be an agency arrangement, a true trust (with its own income tax consequences) or neither. The determination of the nature of an in-trust account is made on a case by case basis in light of the specific facts of the case. (For further comments on 'in-trust' accounts, see enclosed severed CRA documents, 2007-023376 and 2002-017676.) How amounts in a bank account are funded and whether an agency relationship or a trust exists are questions of fact that can best be resolved, with substantiating documentation, at a Tax Services Office.

We trust our comments will be of assistance to you.

Yours truly,

R.A. Albert, CA
For Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch