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.
Principal Issues: Which entity would be the reporting entity under section 233.4 of the Act for a US corporation that is owned by a US partnership, where the US partnership has a member that is a deemed Canadian non-resident trust under paragraph 94(3)(a) of the Act?
Position: None of the entities in this particular fact pattern would be required to report under section 233.4 of the Act.
Reasons: 94(3)(a)(vi) deems a non-resident trust to be resident in Canada for its filing obligation under section 233.4 only. It does not create a filing obligation for the US partnership.
Author: Robinson, Lauri
Section: 93.1(1), 94(3), 233.4
Lauri Robinson, CPA, CMA
July 13, 2016
Dear Mr. XXXXXXXXXX:
Re: Application of Section 233.4 for a Deemed Canadian Resident Trust
We are writing in reply to your email dated September 9, 2015, and letter received on September 11, 2015, concerning the foreign reporting requirements under section 233.4 of the Income Tax Act (the “Act”). We apologize for the delay in responding.
In your correspondence, you describe a hypothetical scenario where a non-resident trust (“NRT”) is a factual resident of the United States, but is deemed to be resident in Canada pursuant to paragraph 94(3)(a) of the Act. The NRT owns a direct interest in a limited liability partnership (“LLP”) resident in the United States. All of the LLP’s other partners are non-residents of Canada and the NRT is entitled to more than a 10% share of the income or loss of the LLP. The LLP is the sole shareholder of a non-resident taxable corporation (for example a C corporation or a US LLC) resident in the United States.
In your letter you state that subparagraph 94(3)(a)(vi) deems the NRT to be resident in Canada for purposes of determining an obligation of the NRT to file a return under section 233.3 or 233.4, but does not make the non-resident corporation a controlled foreign affiliate of the NRT. You also state that subsection 93.1(1) only applies to a corporation resident in Canada that owns shares of a non-resident corporation through a partnership and does not apply to the NRT owning shares through a partnership. Finally, you assert that although subparagraph 94(3)(a)(vi) deems the NRT to be resident in Canada throughout the taxation year for the purpose of determining an obligation of the NRT to file a return under 233.4, it does not deem the NRT to be resident in Canada for paragraph 233.4(1)(c) purposes.
Your letter requested clarification on how the application of section 233.4 would apply to the particular fact pattern described.
This technical interpretation provides general comments about the provisions of the Act, 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 70-6R7, Advance Income Tax Rulings and Technical Interpretations.
The application of section 233.4 would depend on whether the LLP is treated as a corporation or a partnership for Canadian income tax purposes. As announced at the International Fiscal Association International Tax Conference in Montreal on May 26, 2016, the CRA is of the view that limited liability partnerships and limited liability limited partnerships governed by the laws of the states of Florida and Delaware should generally be treated as corporations for purposes of Canadian income tax law. Your letter did not indicate which laws govern the LLP. However, for the purposes of your question, we have assumed that the LLP is treated as a partnership for Canadian income tax purposes.
Subsection 233.4(1) defines a “reporting entity” for purposes of filing an information return in respect of foreign affiliates pursuant to subsection 233.4(4). In the hypothetical situation described, we agree that none of the entities would be a “reporting entity” in relation to the non-resident corporation and, as a result, no one would be required to file an information return in respect of the non-resident corporation. In particular, we agree that when determining if the partnership is a “reporting entity” for purposes of paragraph 233.4(1)(c), the NRT would not be considered resident in Canada.
We do note that although the NRT would not be required to file form T1134 in respect of the non-resident corporation, paragraph 94(3)(a) does deem the NRT to be resident in Canada for computing its worldwide income for the year and its liability for tax under Part I of the Act.
We hope this information is of assistance to you.
Terry Young, CPA, CA
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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