7 November 1984 Income Tax Severed Letter

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.

November 7, 1984

XXXX

Dear Sirs:

This is in reply to your letter of July 18 in which you requested our opinion on several questions outlined therein.

We will reply to your questions in the order in which they were presented in your letter:

1. It is our view that any payments made under a registered retirement income fund would fall within the definition of "pension", as defined in the Canada-United States Income Tax Convention (Convention), since such benefits would be considered as a payment under a retirement plan.

2. Any payment received by a taxpayer from an annuity, the cost of which was purchased from funds of a registered retirement saving plan, would, in our view, be considered as a payment under a retirement plan and would consequently qualify as a "pension" for purposes of the Convention. We consider that while such payment is an annuity it also qualifies as retirement plan and since a specific article overrides a general article, it will qualify as a pension for purposes of the Convention.

3. Pursuant to paragraph 5 of Article XXX of the Convention, payments to individuals could enjoy the treatment under the 1942 Convention until December 31, 1985. However, we would also agree with your comments that certain taxpayers may enjoy even a greater extension of the benefits provided under the 1942 Convention while other taxpayers may be limited to less than a year in situations where a short year-end occurs. You appeared to be concerned that payors should be withholding at the higher rate of tax in the two treaties in order to ensure that they will not be caught with penalty and interest payments as a result of not withholding sufficient tax at source.

It is our view that where certain payments subject to Part XIII are being paid to non-residents, and such payments would have a more beneficial treatment under the 1942 Convention than under the present Convention, that such non-resident individuals should be given the benefit of the 1942 Convention until December 31, 1985. In these cases where the payments are made to a taxpayer, other than an individual, the payor can be assured that the first taxable year of such a taxpayer could not end before December 31, 1985, except in those cases where it has a short year-end. Since the payor cannot in all situations be certain whether or not taxpayers, other than individuals, will qualify for the benefits under paragraph 5 of Article XXX, they may wish to collect the higher rates of withholding to ensure they are not subject to penalty and interest payments for failure to withhold sufficient Part XIII tax.

We confirm that the term "taxable year" as used in the Convention should be interpreted for Canadian taxation purposes as "taxation year".

4. It is our view that paragraph 4 of Article XXVI provides authority for Canada to make such regulations as required to ensure that relief granted under the Convention does not benefit those persons who are not entitled thereto. Accordingly, Revenue Canada is presently reviewing its policy with respect to Regulation 203 and form NRI. Until this review is completed, Regulation 203 will continue in force.

5. In reviewing our NR1 procedures, discussion will be required with our United States counterparts to determine what methods will be used to ensure that only beneficial owners in Canada will benefit from the Convention.

As soon as these procedures are finalized, Canadians affected will be made aware of the final procedures discussed in 4 and 5 above.

We trust that this is satisfactory for your purposes.

Yours sincerely,

Director Provincial and International Relations Division