2019-0798861C6 IFA 2019 Q.6 Non-resident filing income tax return

Principal Issues: Whether the disposition of taxable Canadian property (but not treaty-protected property) by a non-resident partner is considered to be an excluded disposition under subsection 150(5), thereby allowing the non-resident to avoid having to file a Canadian income tax return under subsection 150(1).

Position: No in the facts provided.

Reasons: As the non-resident partner has Part I tax payable for the year of the disposition, there is a requirement to file a Canadian income tax return.

Author: Clarkson, Julia
Section: 150(1), 150(1.1), 150(5), 162(2.1), 162(7)

2019 International Fiscal Association Conference
CRA Roundtable

Question 6 - Tax Returns

In general terms, where a non-resident of Canada disposes of property that is “taxable Canadian property” but not “treaty-protected property”, that non-resident is required to apply for a section 116 certificate. In order to obtain this certificate, an amount on account of Part I tax payable must be paid. Section 150 of the Income Tax Act (the “Act”) then requires that the non-resident must file a Canadian tax return unless certain exceptions apply, one of which refers to a disposition that is an “excluded disposition” as defined in subsection 150(5). Often the disposition involves numerous non-resident partners and this tax return filing obligation is an obligation of each non-resident partner. This is administratively onerous. Can the CRA confirm that, in respect of a disposition where a section 116 certificate is issued and all Canadian taxes owing on the resulting taxable capital gain have been paid, no Part I tax is considered to be payable by the non-residents for the purposes of paragraph 150(5)(b), such that the disposition will be an “excluded disposition”?

CRA Response

Non-resident taxpayers are required by section 150 of the Act to file a Canadian income tax return for a taxation year if, among other things, they have Part I tax payable for that year. Tax payable refers to the amount of tax payable before deducting amounts paid on account of that tax, such as by way of instalment or withholding. This interpretation applies to the references to tax payable in subparagraphs 150(1)(a)(ii) and 150(1.1)(b)(i), as well as to the wording “no tax is payable” used in paragraph 150(5)(b).

Therefore, even if a section 116 certificate has been issued and an amount on account of all Part I tax payable has been paid, the disposition described in the question would not be an excluded disposition because the requirement in paragraph 150(5)(b) that “no tax is payable under this Part by the taxpayer for the taxation year” would not be met. Similarly, Part I tax would be payable within subparagraph 150(1)(a)(ii) or 150(1.1)(b)(i), as the case may be.

Julia Clarkson
2019-079886
May 15, 2019

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