31 March 1993 Income Tax Severed Letter 3M05210-27 - APFF 1992: Question 27—Obligation to withhold Part XII tax

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.

                     TRANSLATION FROM FRENCH

ASSOCIATION DE PLANIFICATION FISCALE ET FINANCIFERE

                   REVENUE CANADA ROUND TABLE

1992 CONFERENCEASSOCIATION DE PLANIFICATION FISCALE ET FINANCIFERE
                   REVENUE CANADA ROUND TABLE
                          October 1992

              IV.  AUDITS AND ADMINISTRATION

Question 27

Obligation to withhold Part XIII tax

Subsection 212(1) of the Act provides for 25% to be withheld on certain amounts paid by a resident of Canada to a non-resident. This percentage may be reduced to 10% or 15% under international treaties entered into by Canada.

Elsewhere, section 215 of the Act provides that the Canadian resident must withhold Part XIII tax on money paid to a non- resident.

Where the 25% payable by a non-resident on amounts received from a resident of Canada is 25% because of subsection 212(1) of the Act, but is reduced to 15% by the tax convention between Canada and the non-resident's country of residence, what is the statutory basis for a resident of Canada's withholding only 15% of the amount paid to the non-resident?

Department of National Revenue response

Whatever the effect of a tax convention at the international level, it is well established that these conventions have the force of law in Canada once they have been enacted in the appropriate domestic legislation. This principle was stated in Attorney General of Canada v. Attorney General of Ontario, (1937) A.C. 326. It was also affirmed in Francis v. The Queen (1956), 3 D.L.R. (2d) 641 (S.C.C.). Consequently, every tax convention must be the subject of positive legislation in order for it to have the force of law in Canada. It should be noted in connection with this that subsection 10(6) of the 1971 Income Tax Application Rules explains that any reference in a tax convention to a rate higher than the rate stipulated in a tax convention is, with respect to the payments made to a resident of the other country, to be interpreted as a reference to the rate stipulated in the tax convention.

Finally, we refer you to the comments in Information Circulars 77-16R4 (paragraph 14) of May 11, 1992 and 76-12R4 (paragraph 2) of February 19, 1988 where it is explained that the statutory withholding rate may be reduced under a bilateral tax convention that has been ratified.