Exempt U.S. Organizations - Under Article XXI of the Canada - United States Tax Convention

Revised March 31, 2016

T4016(E) Rev.16

Clients who want a Letter of Exemption should direct their enquiries to the International and Ottawa Tax Services Office at the following address:

International and Ottawa Tax Services Office
Non-Resident Withholding Division

Article XXI
Post Office Box 9769, Station T
Ottawa ON K1G 3Y4

If you have any enquiries concerning Letters of Exemption, you may contact the International Tax and Non-Resident Enquiries Line by telephone at 1-855-284-5946, or by fax at (613) 941-6905.

The U.S. organizations listed in this guide are approved for the exemption from Canadian Non-Resident Tax under Article XXI, paragraphs 1 and 2 of the Canada – U.S. Income Tax Convention with effect to March 31, 2016. Queries with regard to its content may be addressed to:

Canada Revenue Agency
Ottawa ON K1A 0L5

Attention: Individual Compliance Directorate

Letter of Exemption Requirements:

Paragraph 1

Under Paragraph 1 of Article XXI, we require the following information prior to issuing a Letter of Exemption:

• Articles of incorporation (to verify the purpose of the organization, the trustee information, dissolution clause, and the not-for-profit clause)
• A letter of favorable determination within 10 years of being issued from the Internal Revenue Service (IRS) stating that the organization is tax exempt under 501(c)(3) of the Internal Revenue Code or Form 6166 stating that the organization is recognized as a tax exempt organization per 501(c)(3) and resident in the United States
• Information concerning the types of income received from sources within Canada, and
• Address of organization

Paragraph 2

Under Paragraph 2 of Article XXI, we require the following information prior to issuing a Letter of Exemption:

• A letter from the IRS stating that the plan is tax exempt pursuant to the Internal Revenue Code
• Plan documents are required to verify the:
  
  1. non-diversion of funds
  2. dissolution clause
  3. trustee information
  4. effective date of the trust, trustee signature, and
  5. name and address of the plan

Individual Retirement Accounts (IRAs) are also exempt under Paragraph 2 of Article XXI. In order for an IRA plan to qualify for purposes of a Letter of Exemption, the custodian/trust/individual must provide the CRA with the following information:

• The name of the beneficial owners of the IRAs
• The Tax Identification Number of the beneficial owners
• The addresses of the beneficial owners
• A notarized affidavit as to the country of residence of the holder of the IRAs and either
  • a hard copy of the IRAs approved adoption agreement of an Individual Retirement Plan/Trust Agreement
  • a hard copy of the custodian’s Individual Retirement Plan/Trust Agreement, and
  • a hard copy of the fully completed IRS Form 5305 or 5305A

(Name and Address)

(Officer’s Name)
International and Ottawa Tax Services Office
Telephone: 1-855-284-5946 (Canada & USA)
or: (613) 940-8499
Fax: (613) 941-6905

Attention: (Client’s Name)

Date

Dear Madam/Sir:

Re:

We are writing in response to your letter of (date), concerning application for exemption under Article XXI, Paragraph 1 of the Canada-United States Income Tax Convention (1980) (the Convention).

We have reviewed your application and based on the information provided we are of the view that

xxxxxxxxx

as presently constituted, qualifies under Article XXI(1), of the Convention, for exemption from Canadian withholding tax on(type(s) of income) income received from Canadian sources. The CRA identification number assigned to this organization is (identification number) and this exemption letter expires on (date). The payer(s) concerned should be furnished with a photocopy of this Letter of Exemption as their authority for making payment of (type(s) of income) amounts without deduction for Canadian withholding tax. Should this exemption be withdrawn, you are required to so advise the payer(s) immediately.

Pursuant to paragraph 4 of Article XXI of the Convention, this exemption does not apply to income earned in Canada by the organization from carrying on a trade or business, or to income from a “related person” other than a person referred to in paragraphs 1 or 2 of Article XXI of the Convention. Income of these types may be subject to Canadian withholding taxes. (For your convenience, paragraphs 1 through 4 of Article XXI are reproduced in the attached appendix to this letter.)

Whether income is from carrying on a business is a question of fact. While it is not the only instance in which Canada might consider income to be from carrying on a business, in most cases, where income would be treated as “unrelated business income” under the Internal Revenue Code (the Code), it is probable that Canada would conclude the income so categorized is from carrying on a business.

To best ensure timely renewal of this exemption, please write to us at least three months prior to the date on which the exemption herein granted expires. Please include with the letter a notarized statement confirming that there have been no changes in any of:

• the organization’s activities, objectives, and purposes;
• the type(s) of income with respect to which the exemption is sought; and
• the organization’s tax-exempt standing with the IRS.

Where there have been any such changes, please provide us with complete details.

Please notify this office promptly should there be any change in the organization’s tax-exempt status under the Code, in the Internal Revenue Service determination of the exempt activities of the organization and/or the objectives, purpose or name of the organization.

Yours sincerely,

(Assistant Director’s name)
Assistant Director
Non-Resident Withholding Division
International and Ottawa Tax Services Office
P.O Box 9769, Station T
Ottawa, Ontario, Canada, K1G 3Y4

Article XXI
Exempt Organizations

1. Subject to the provisions of paragraph 4, income derived by a religious, scientific, literary, educational or charitable organization shall be exempt from tax in a Contracting State but only to the extent that such income is exempt from tax in that other State.

2. Subject to the provisions of paragraph 4, income referred to in Articles X (Dividends) and XI (Interest) derived by a trust, company, organization or other arrangement that is a resident of a Contracting State, generally exempt from income taxation in a taxable year in that State and operated exclusively to administer or provide pension, retirement or employee benefits shall be exempt from income taxation in that taxable year in the other Contracting State.

3. Subject to the provisions of paragraph 4, income referred to in Articles X (Dividends) and XI (Interest) derived by a trust, company, organization or other arrangement that is a resident of a Contracting State, generally exempt from income taxation in a taxable year in that State and operated exclusively to earn income for the benefit of one or more of the following:

1. An organization referred to in Paragraph 1; or
2. A trust, company, organization or other arrangement referred to in paragraph 2;

shall be exempt from income taxation in that taxable year in the other Contracting State.

4. The provisions of paragraphs 1, 2 and 3 shall not apply with respect to the income of a trust, company, organization or other arrangement from carrying on a trade or business or from a related person other than a person referred to in paragraphs 1, 2 or 3.