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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Dear Sirs:
This is in reply to your letters of May 4 and June 2, 1987, addressed to the Registration Division, which were forwarded to this Division for reply.
It is our understanding that you are concerned with a situation where a trust was established in Canada on the death of a taxpayer. You indicated that the trust is in receipt of income from Canadian guaranteed investment certificates and income from a mortgage on real property located in Canada. The income of the trust is being paid to a U.K. beneficiary, which is a charitable organization, and you are concerned whether or not the income paid to the non-resident is subject to withholding tax by virtue of either paragraphs 212(1)(b) or (c) of the Income Tax Act.
Subsection 108(5) of the Act provides that except for specific flowthroughs provided in the Act, all amounts included in computing the income for a taxation year of a beneficiary of a trust by virtue of subsection 104(13) or (14) are deemed to be income of the beneficiary for the year from property that is an "interest in a trust" and not from any other source. Therefore, when the interest is paid from the trust to the non-resident beneficiary, in the case set out above, the latter will be considered to be receipt of "income from a trust" for taxation purposes and not in receipt of income from a source that is interest. Subsection 212(11) of the Act also confirm that flow through sections, such as 104(26) of the Act do not apply to non-residents.
Paragraph 212(1)(c) requires a resident of Canada to withhold 25% tax on all amounts paid or credited to a non-resident person in satisfaction of income of or from an estate or trust. However, Article XX of the Canada-U.K. Tax Convention provides that income received from an estate or trust resident in Canada by a resident of the United Kingdom who is a beneficial owner shall not exceed 15% of the gross amount of the payment. Accordingly, the trust referred to above should withhold 15% of the gross amount paid or credited to the U.K. beneficiary.
We trust these comments are suitable for your purposes.
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© Her Majesty the Queen in Right of Canada, 1987
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© Sa Majesté la Reine du Chef du Canada, 1987
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