24 October 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.

October 24, 1984

Peter E. Salvatori

XXXX

Re: Article XXX(5), Canada-United States Income Tax Convention, 1980

This is in reply to your letter of October 1, 1984 concerning the above mentioned subject.

As indicated in your letter, the 15 per cent rate of withholding applicable to royalties on resource properties paid to residents of the United States is continued pursuant to Article XXX(5) of the new Convention to the end of the recipient's first taxation year commencing after 1984.

In connection with this "grandfathering provision", you have asked the following questions:

1. A corporation resident in the United States that has a December 31 year-end owns a royalty on a Canadian resource property. Effective June 30, 1985, it changes its year-end to June 30. The 15 per cent tax rate under the 1942 Convention applies to royalty payments to June 30, 1985.

2. An individual resident in the United States owns a Canadian resource property that he acquired before 1985. In 1985, the individual acquires another royalty on a Canadian resource property. His taxation year is the calendar year, and he will be eligible for 15 per cent withholdings for all Canadian resource property royalty payments in 1985.

3. An individual resident in the United States who never owned property in Canada or otherwise applied the provisions of the 1942 Convention before 1985 acquires a royalty on a Canadian resource property in 1985. His taxation year is the calendar year, and he will be eligible for 15 per cent withholding for Canadian resource property royalty payments in 1985.

4. On June 30, 1985, an individual resident in the United States dies. The individual owned a royalty on a Canadian resource property which, upon his death, was transferred to his estate. His estate has its first year-end on December 31, 1985. The estate will be eligible for 15 per cent withholding on Canadian resource property royalty payments until December 31, 1985.

5. A company incorporated and resident in the United States on June 30, 1985 acquires a royalty on a Canadian resource property in 1985. The Company's first taxation year ends June 30, 1986 and it will be eligible for 15 per cent withholding for Canadian resource property royalty payments until June 30, 1986.

We agreed with and confirm each of the above propositions.

You point out that pursuant to subsection 215(6) of the Act the payor is held responsible for the tax which has not been deducted and withheld, and you wish to know whether in connection with Article XXX(5) of the new Convention the payor is entitled to rely on the recipient's representation of his fiscal year-end.

The payor's liability for insufficient withholdings under the Act is not eliminated even though he may have exercised some diligence. Whenever there is a failure to deduct or withhold an amount as required by section 215 of the Act, the payor's liability to pay the tax is engaged. However, the Department will be reasonable in the circumstances.

We trust that the foregoing information is of assistance.

Yours sincerely,

Director Provincial and International Relations Division