2011-0402791E5 Reporting of cost reimbursements to a non-resident

Principal Issues: Whether a Canadian resident corporation would be required to file certain information returns if a reimbursement payment is not subject to Part XIII tax.

Position: Yes, the Canadian resident corporation would be required to file information return(s) such as NR4, Schedule 29 and T106, as applicable.

Reasons: Regulation 202(1) and 233.1 of the Act.

Author: Basso, Denise
Section: 212(1)(a), 212(4), 233.1 and regulations 105(1), 202(1)

XXXXXXXXXX
                                                      2011-040279
                                                      Denise Basso
                                                      416-973-0032
July 8, 2015

Dear XXXXXXXXXX:

Re: Reporting of cost reimbursement payments made to a non-resident person

We are writing in reply to your letter of April 4, 2011, in which you requested our views concerning the filing and reporting requirements related to a cost reimbursement payment made to a corporation not resident in Canada in a hypothetical situation.  We apologize for the delay in responding.

Facts as provided

1.    The taxpayer is a Canadian resident corporation (“Canco”) wholly owned by a corporation not resident in Canada (“Forco”).

2.    Canco pays management or administration fees (“Reimbursement Payment”) to Forco as a reimbursement of expenses incurred by Forco on Canco’s behalf.

3.    The Reimbursement Payment meets the conditions set out in paragraph 212(4)(b) of the Income Tax Act (“Act”) such that it is not subject to withholding tax under paragraph 212(1)(a).

Our Comments

This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R6, Advance Income Tax Rulings and Technical Interpretations.

Paragraph 202(1)(a) of the Income Tax Regulations (the “Regulations”) states that every person resident in Canada shall make an information return in prescribed form in respect of any amount that the person pays or credits to a non-resident person as, on account or in lieu of payment of, or in satisfaction of, a management or administration fee or charge.

Thus, despite the fact that the Reimbursement Payment is exempt from Part XIII tax by virtue of paragraph 212(4)(b) of the Act, a payment to a non-resident for a management or administration fee or charge would require the filing of information returns, specifically:

-     Form NR4 “Statement of Amounts Paid or Credited to Non-Residents of Canada”;

-     Form NR4SUM “Summary of Amounts Paid or Credited to Non-Residents of Canada”; and

-     Schedule 29 “Payments to Non-Residents”.

Information return T106 “Information Return of Non-Arm’s Length Transactions with Non-Residents” must also be filed by a “reporting person” in respect of a “reportable transaction” in which a reporting person and a non-resident non-arm’s length person participated in the year, pursuant to subsection 233.1(2) of the Act.

A “reporting person”, pursuant to paragraph (a) of the definition of that term in subsection 233.1(1) of the Act, includes for a taxation year a person who, at any time in the year, is resident in Canada, and a “reportable transaction” pursuant to paragraph (b) of the definition in subsection 233.1(1) of the Act, in the case of a person resident in Canada, includes a transaction or series of transactions that relate in any manner whatever to a business carried on in Canada by the reporting person. 

An exception to subsection 233.1(2) of the Act is provided for in subsection 233.1(4), which states that a reporting person is not required to file Form T106 unless the total amount of all reportable transactions exceeds $1,000,000.

Accordingly, Canco would be a “reporting person” and its transactions with Forco would be “reportable transactions” as they relate to a business carried on in Canada by Canco.  Canco would be required to file form T106 to report the Reimbursement Payment to Forco if total amount of all reportable transactions in a taxation year of Canco exceeds $1,000,000.

Upon written request to the Minister under subsection 220(2.1) of the Act, the Minister may waive the requirement to file a prescribed form or to provide prescribed information.  Such requests should be directed to the International Tax Services Office in Ottawa at the following address:

International and Ottawa Tax Services Office
Post Office Box 9769, Station T
Ottawa ON  K1G 3Y4
CANADA

If the reimbursement is in respect of services provided in Canada by a non-resident person, Regulation 105 may have application to Forco.

We trust our comments are of assistance.

Yours truly,

Olli Laurikainen, CPA, CA
For Director
International Division
Income Tax Rulings Directorate

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