12 October 2007 External T.I. 2007-0253901E5 - Refund of non-resident withholding taxes

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 a U.S. resident can apply for a refund in respect of Part XIII taxes withheld.

Position: Yes, if the amount originally withheld is more than that required under the Canada - U.S. Tax Convention, and if the application for refund is made within the time limit specified.

Reasons: Excess withholding taxes may be refunded if the application for refund is made within the time limit specified.

XXXXXXXXXX 							2007-025390
D. Zhang
(613) 957-2104
October 12, 2007

Dear XXXXXXXXXX:

Re: Refund of Part XIII withholding tax

We are writing in response to your electronic message of September 26, 2007 in which you requested our comments regarding the refund of Part XIII taxes.

You indicated in your message that Part XIII taxes were withheld on certain dividends and royalties paid to your client. Your client has claimed a foreign tax credit on his U.S. federal income tax return with respect to these taxes. You would like to know whether he could also request for a refund of the Part XIII taxes withheld.

For purposes of responding to your query, we assume that your client is a resident of the U.S. for purposes of the Canada-U.S. Tax Convention (the "Treaty").

Our Comments

It is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. For more information about how to obtain a ruling, please refer to Information Circular 70-6R5, "Advance Income Tax Ruling", dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the Internet at http://www.cra-arc.gc.ca. Should your situation involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate Tax Services Office ("TSO") for their views. A list of TSOs is available on the "Contact Us" page of the CRA website. Although we cannot comment on your specific situation, we are prepared to provide the following general comments.

Part XIII of the Income Tax Act imposes a 25% withholding tax on certain amounts, including dividends and royalties, paid or credited to a non-resident. Where a non-resident is a resident of the U.S., the rate of the withholding may be reduced by the Treaty. Accordingly, your client may be entitled to a refund of all or part of the Part XIII taxes to the extent that the amount actually withheld by the Canadian payor or the withholding agent exceeds the amount specified in the Treaty. Your client may apply for a refund of withholding taxes by completing form NR7-R, which is available on the CRA website, and mail it to the Non-Resident Withholding Division of the International Tax Services Office at 2204 Walkley Road, Ottawa, Ontario Canada K1A 1A8. The application for refund should be made no later than 2 years after the end of the calendar year in which the amount was withheld. In the event that an application is made after the 2-year period but within 6 years from the end of the taxable year, the Canadian competent authority may provide relief pursuant to the Treaty.

If your client receives a refund of Part XIII taxes, you should advise the U.S. tax authorities so that the foreign tax credit claimed may be appropriately adjusted.

We trust that these comments are of assistance.

Yours truly,

Daryl Boychuk
Manager
International Section I
International and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch