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.
XXX
Re: Withholding Tax on Debt Obligations
We are writing in response to your letter of August 14, 1990 in which you requested our comments on clause 212(1)(b)(ii)(C) of theIncome Tax Act(Canada) (the “Act”).
You have asked if an obligation to repay guaranteed investment certificates (the “Certificates”) issued by an entity listed in subclauses (I) to (V) to clause 212(1)(b)(ii)(C) of the Act, or an obligation to repay certain funds on deposit payable on demand (the “ Deposits”) received by the same entity would qualify as “similar obligations” as contemplated in that clause.
The exemption from a paragraph 212(1)(b) withholding requirement contained in clause 212(1)(b)(ii)(C) is available in respect of “. . . bonds, debentures, notes, mortgages, hypothecs or similar obligations . . .” It is a question of fact whether a particular debt instrument of a particular issuer has characteristics the same or similar to bonds, debentures, notes, mortgages and hypothecs. The relevant characteristics to be considered would include the obligation's provisions with respect to interest, repayment and consequences of default.
The Certificate and the Deposits differ from the other obligations identified as they are both considered deposit instruments and may or may not be secured under the Bank Act. Bonds, debentures, mortgages and hypothecs are commonly secured. However, depending on the particular circumstances and regardless of their classification as deposit instruments, the Certificates and the Deposits might be considered sufficiently similar to unsecured notes to qualify as similar obligations.
We emphasize that the debt issuing entity in question must be one of those specifically identified in subclauses 212(1)(b)(ii)(C)(I) to (V) for the clause (C) withholding exemption to apply.
We would be prepared to consider the application of the clause 212(1)(b)(vii)(C) withholding exemption to a particular obligation which an issuer proposes to issue to a particular investor, in response to a request for an advance income tax ruling submitted with the documents and information referred to in paragraph 15 of Information Circular 70-6R2.
Our comments in this letter are provided pursuant to the practice referred to in paragraph 21 of Information Circular 70-6R2.
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© Her Majesty the Queen in Right of Canada, 1991
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© Sa Majesté la Reine du Chef du Canada, 1991
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