2014-0522271E5 REIT Distribution - Article 21 Canada-Sweden Treaty

Principal Issues: Do distributions from a REIT resident in Canada to a resident of Sweden qualify for relief under the Canada-Sweden Treaty?

Position: Yes.

Reasons: -

Author: Storr, Keely
Section: 122.1(1) "real estate investment trust", 212(1)(c) of the Act; Article 21(2) Canada-Sweden Tax Convention

XXXXXXXXXX                                      2014-052227
                                                              K. Storr

July 28, 2015

Dear XXXXXXXXXX:

Re: REIT Distributions to non-residents of Canada

We are writing in response to your email dated February 25, 2014, in which you requested our views as to whether there is any relief available under the Canada-Sweden Tax Convention (the “Treaty”) where the rate of Canadian tax withheld from a trust income distribution under the Canadian Income Tax Act (the “Act”) is 25%. In particular, you described a situation where an individual, who is a resident of Sweden for the purposes of the Treaty, has received an income distribution from a Real Estate Investment Trust (“REIT”) resident in Canada. Canadian withholding tax has been withheld from the income distribution at a rate of 25% of the gross amount of the distribution. You have requested our view as to whether there is any relief available by application of the Treaty.

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 however, we offer the following general comments, which may be of assistance to you.

A REIT is defined under subsection 122.1(1) of the Act and is a trust that is a resident of Canada for the purposes of the Act. In general, the Act provides that income distributions from a Canadian resident trust, including a REIT, to a non-resident of Canada are subject to Part XIII withholding tax at a rate of 25%. There are exceptions whereby certain payments may be made free of Part XIII tax and situations where Canadian taxes other than Part XIII may apply depending on the nature of the trust that is making the distribution and the source of the funds the trust is distributing. However, your question contemplates that a 25% rate of withholding has been applied. Assuming that, subject to the application of the Treaty, the rate of withholding was in accordance with the Act, it is not necessary to comment on these exceptions and other taxes.

Where the provisions of the Act otherwise provide that a trust income distribution is subject to Canadian Part XIII withholding tax at a rate of 25% and where the recipient of the distribution is a person resident in Sweden for the purposes of the Treaty, the Canadian Part XIII withholding tax rate is limited to 15% of the gross amount of the payment by application of paragraph 2 of Article 21 of the Treaty provided that the distribution is taxable in Sweden. Accordingly, in the above scenario, if the individual is taxable in Sweden on the trust income distribution, the Canadian tax that was withheld is in excess of the Treaty rate.

Pursuant to subsection 227(6), when an amount has been paid under Part XIII to the Receiver General, on behalf of a taxpayer who was not liable to pay or where the amount so paid is in excess of the amount that the taxpayer was liable to pay under this Part, the Minister shall, on written application, refund all or part of the Part XIII taxes. Taxpayers may apply for a refund of Part XIII withholding taxes by completing form NR7-R, which is available on the CRA website, and mail it to the Non-Resident Withholding Division of the International and Ottawa Tax Services Office at P.O. Box 9769, Station T, Ottawa, Ontario Canada K1G 3Y4. The application for refund must be made no later than 2 years after the end of the calendar year in which the amount was withheld. If a taxpayer applies for and receives a refund of any Part XIII taxes in respect of which a foreign tax credit has been claimed for Swedish tax purposes, the taxpayer should consider the Swedish tax implications of the Part XIII tax refund.

We trust these comments are of assistance.

Yours truly,

Olli Laurikainen, CPA, CA
A/ Director
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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