18 July 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.

Revenue Canada, Taxation 875 Heron Road Ottawa, Ontario K1A OL8

FOR: Non-Corporate Rulings Division

Dear Sir:

Canada-United States Income Tax Convention (1980)

As the new U.S.-Canada convention will enter into force shortly, we are seeking your views in a few situations of concern to us.

1. Is a registered retirement income fund a "retirement plan" within the meaning of the term "pensions" as defined in paragraph 3 of Article XVIII?

2. As the "cost" of an annuity purchased as a retirement income with monies from a registered retirement savings plan includes amounts of accumulated income and capital gain in addition to the deductible RRSP contributions made by the annuitant under the plan, we feel that such an annuity cannot be excluded from the term "annuities" as defined in paragraph 4 of Article XVIII. Will you please confirm this view.

3. Paragraph 5 of Article XXX provides that more advantageous relieving provisions of the 1942 Convention will continue in effect for the first taxable year during which the provisions of subparagraph 2(b) of that article would be in force. On the assumption that the new convention enters into force in 1984, and that XXX(2)(b) will have effect from the beginning of taxation years commencing on or after January 1, 1985, it is our opinion that paragraph 5 will operate, for any particular taxpayer, to the end of his taxation year which commences on or after January 1, 1985. That is, a calendar year taxpayer would enjoy the benefits of XXX(5) until 31/12/85.

In our capacity as payors of income averaging annuity payments, pension benefits, and RRSP benefits, where the 1942 Convention restricts withholding of Canadian tax to a level lower than that provided in the 1980 Convention, may we apply the provisions of the 1942 Convention until December 31, 1985? We understand the term "taxable year", appearing in the Convention is to be read as "taxation year", meaning that the only difficulty with such an extension to 31/12/85 of favourable 1942 Convention provisions is that certain corporations or testamentary trusts may be entitled to an even greater extension (for which the NR7-R refund procedure will undoubtedly be necessary), while others may have a foreshortened taxation year commencing on or after 1/1/85 and ending prior to 31/12/85 (eg. a trust which terminates).

If this is sufficient reason to deny the extension of 1942 Convention benefits to 31/12/85 even for living individuals, we are concerned that every U.S. resident receiving the payments described will be submitting forms NR7-R. Perhaps you will take up this point with your operations people.

4. As the 1980 Convention has no provision analagous to paragraph 5 of Article XI of the 1942 Convention, will you please advise us of the date upon which the statutory authority for Canada's Income Tax Regulation 203 will cease to exist. Paragraph 6 of Article XXX of the 1980 Convention appears to suggest it could be at different times for different taxpayers.

5. With the imminent disappearance of Regulation 203, and the conferring of reduced withholding rates generally only to "beneficial owners" resident in a contracting state, we are wondering whether there has been any discussion with the U.S. authorities concerning procedures that may be followed by U.S. paying agents to ascertain the status of beneficial owners. This is a matter of some concern to us as we maintain registration of securities in nominee name in a great many cases, including those of non-residents and of taxpayers such as non-resident owned investment corporations who are denied certain treaty benefits, and pension funds who are entitled to enriched benefits. On the Canadian side, we expect that the "beneficial ownership" procedures described in Information Circular IC 76-12 R2 will continue to be followed. Your comments would be appreciated.