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.
Dear Sirs:
This is in reply to your letter of September 5, 1986 requesting clarification of withholding tax rules with respect to dividend allocations under an EPSP to non-resident employees who have never contributed to the plan while resident and working in Canada.
In your opinion withholding taxes under Part XIII of the Income Tax Act (the "Act") are applicable on dividend allocations to non-resident employees by virtue of subsection 144(8) of the Act. In your view such allocations are not income from a trust within the meaning of paragraph 212(1)(c) but are more appropriately subject to Part XIII withholding pursuant to subsection 212(2) of the Act.
Our Comments
Subsection 144(8) of the Act deems the amount therein referred to have been received by the beneficiary employee when allocated by the trustee whereas subsection 212(2) of the Act states that "every non-resident person shall pay an income tax of 25% on every amount that a corporation ... pays or credits, or is deemed by Part I ... to pay or credit, to him". In our view an amount allocated by a trustee and deemed received from, what in effect is a pool of dividends, is not the same as an amount paid, credited or deemed paid or credited in satisfaction of a (specific) taxable dividend from a particular corporation. Thus dividends allocated to non-residents in respect of services rendered outside of Canada in the circumstances outlined in your letter would not be subject to Canadian income tax pursuant to the provisions of subsection 2(3) and 115(1) of the Act nor would they be liable to tax under Part XIII of the Act on such allocations or subsequent payments out of the trust in respect of such allocations.
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© His Majesty the King in Right of Canada, 1986
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© Sa Majesté le Roi du Chef du Canada, 1986
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