7 August 1990 Income Tax Severed Letter - Review of draft NR4B guide and forms

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.

Subject: NR4B Guide and Forms

This is in reply to your memorandum of April 24, 1990 concerning the above-mentioned guide and forms for reporting amounts paid or credited to non-residents of Canada. We have reviewed the draft documents and offer the following comments for your consideration.

Appendix C “Exemption Code” _ Code “G”

• 1. Paragraph 38(c) of Information Circular 77-16R3, paragraph 28 (as revised) in the Special Release to Interpretation Bulletin IT-303 and the paragraph under code “G” are intended to describe the exemption provisions contained in subparagraph 212(1)(d)(vi) of the Act. However, the comments under all of these paragraphs are somewhat incomplete since the key phrase “in respect of the production or reproduction” in subparagraph 212(1)(d)(vi) is missing in each of these paragraphs.

Accordingly, we suggest that line 2 under Exemption Code “G” be reworded to read “. . . in respect of the production or reproduction of any literary, dramatic, musical or artistic work (except . . .”.

• 2. In connection with this point, we offer the following comments concerning payments for computer software programs which may help to explain the exemption provided under subparagraph 212(1)(d)(vi) of the Act.

(A) In general, there are three types of payments made to non-residents in respect of computer software programs:

• (i) payments made by a Canadian resident (end-user) to a non-resident under a license agreement whereby the end-user merely acquires a right to use a computer program in Canada solely for his own use;
(ii) payments made by a distributor operating in Canada to a non-resident under an arrangement whereby the Canadian distributor acquires the right:
• (a) to sell in Canada to end-users of the computer programs the right to use the programs; or
• (b) to sell in Canada such a right to other distributors.
• (iii) payments made by a person resident in Canada to a non-resident under a license agreement whereby the non-resident owner of a computer program grants rights to such a person to produce or reproduce the program in Canada for distribution to other persons.

The payments described in (i) and (ii) above are subject to Part XIII tax by virtue of subparagraph 212(1)(d)(i) of the Act and they do not fall under the exemption provided under subparagraph 212(1)(d)(vi) of the Act.

The payments described in (iii) above are exempt from Part XIII tax by virtue of subparagraph 212(1)(d)(vi) of the Act.

(B) The definition of “literary work” for the purpose of the Copyright Act includes computer programs.

We are enclosing a copy of Question #41 from the Round Table discussion at the 1988 Canadian Tax Foundation Conference which contains additional comments on these types of payments.

We suggest comments be inserted in this Guide which will clearly explain the Department's position on computer software payments.

We have also reviewed the comments contained in the memorandums of May 24, 1990 and May 31, 1990 from the Technical Publications Division and Provincial and International Relations Division, respectively, and we are in general agreement with those comments.

We have enclosed a copy of the Guide in which we have highlighted minor changes you may wish to consider.