7 August 1991 Income Tax Severed Letter - Canada-United States Income Tax Convention - Maintenance Payments

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:

Re: Article XVIII(6) of the Canada-United States Income Tax Convention, 1980

This is in reply to your letter dated May 8, 1991 concerning the application of Article XVIII(6) of the Canada-United States Income Tax Convention, 1980 (the "Convention") in the following hypothetical fact situation:

• 1. A husband and wife are divorced in Canada. Each was a resident of Canada at the time of the divorce.
• 2. The final order of the Canadian court, when pronouncing the divorce, includes provision for maintenance by the husband for both the spouse and the children of the marriage (so long as they are minors), such maintenance to be paid by the husband to the wife.
• 3. After the divorce, the husband ceases to be a resident of Canada and becomes a resident of the United States. The maintenance payments for the wife and children continue to be made by the husband to the wife in accordance with the order of the Canadian court referred to in paragraph 2 above.

Our Views

A. Whether or not the United States imposes withholding tax on the wife in respect of the maintenance payment (such as a tax comparable to the tax imposed by Canada on maintenance paid by a resident of Canada to a non-resident under paragraph 212(1)(f) of the Canadian Income Tax Act) is a matter of the taxation laws of the United States and thus we are unable to comment thereon. Your inquiries in this regard should be directed to the United States Internal Revenue Service. We note that, having regard to paragraph (2) of Article III of the Convention, it is possible that the position of the United States as to where the maintenance arises and thus as to the application of paragraph (6) of Article XVIII of the Convention in respect of the determination of tax payable under the United States Internal Revenue Code may be different from our position as to the application of that provision of the Convention for Canadian tax purposes.

B. In our opinion, for purposes of the application by Canada of paragraph 6 of Article XVIII of the Convention in respect of the determination of tax payable under the Canadian Income Tax Act, maintenance paid by the husband while he is a resident of the United States as described in paragraph 3 above will generally be considered to arise in the United States by virtue of the payor being resident there.

C. We are not in a position to advise at this time based on the hypothetical fact situation submitted by you as to whether the maintenance paid to the wife for the children would be excluded from taxable income in the United States if the recipient were a resident thereof and therefore we are not in a position to advise as to whether such maintenance is exempted from taxation in Canada by virtue of paragraph 6(b) of Article XVIII of the Convention. The Technical Explanation issued by the United States on the Convention provides additional comments on this matter.