7 March 1991 Income Tax Severed Letter - Canada-Switzerland Income Tax Convention

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: Canada-Switzerland Income Tax Convention (1976) (the "Convention")

This is in reply to your letter dated December 17, 1990 whereby you request our opinion concerning the taxation of amounts paid by an estate of an individual who at the time of death was resident in Canada to XXX

You have not provided sufficient information to permit us to express a conclusive opinion in respect of the matter raised by your letter. However, we can offer the following general comments which hopefully will be of assistance to you.

For purposes of our comments set forth below we do not express any opinion as to whether the estates referred to in your letter is a resident of Canada or as to whether XXX

Subsection 212(11) of the Canadian Income Tax Act (the "Act") will likely apply in respect of amounts paid or credited by an estate resident in Canada to a Swiss beneficiary. As indicated by paragraph 6 of Interpretation Bulletin IT-465R (a copy of which is enclosed herewith):

"6. Subject to the exemptions in subsections 212(9), (10), (11.1) and (11.2) . . . , subsection 212(11) provides that any amount paid or credited by a trust to a beneficiary (otherwise than on a distribution or payment of capital) shall be deemed for the purpose of paragraph 212(1)(c) to have been paid as income of the trust regardless of the source from which the trust derived it. Even if the amount so paid or credited was received by the trust in a form which, if it had been paid directly to the non-resident beneficiary, would have been exempt from Part XIII tax, subsection 212(11) applies to render that amount subject to tax under paragraph 212(1)(c) when it is paid or credited to the non-resident by the trust".

By virtue of subsection 212(11), if it applies, amounts paid or credited by a trust to a beneficiary are not considered to be income of the beneficiary from the same source from which the estate or trust derived the funds to permit it to make the distribution to the beneficiary. Rather, amounts paid or credited by an estate to a non-resident beneficiary are characterized as income from a different distinct source, i.e. as income from an estate, and are taxable as such pursuant to paragraph 212(1)(c) of the Act.

Paragraph 7 of Article X of the Convention will likely also apply in respect of amounts paid by an estate resident in Canada to a beneficiary resident in Switzerland. If paragraph 7 of Article X of the Convention is applicable the rate of Canadian income tax exigible under paragraph 212(1)(c) of the Act will be reduced from 25% to 15%, irrespective of the source of the estate's income (i.e. paragraph 7 of Article X does not only apply in respect of distributions made by an estate related to dividends received by the estate).