2021-0904981I7 Application of ss.227(6) to treaty benefits

Principal Issues: If a tax treaty has an As-If-Resident (“AIR”) rule (such as Article 18, paragraph 2 of the Canada-Italy Income Tax Convention), can a taxpayer request an assessment of tax under this treaty provision indefinitely, or will subsection 227(6) limit the timeframe the taxpayer has to request such an assessment to no later than two years after the end of the calendar year in which the amount was paid?

Position: Generally, subsection 227(6) will limit the timeframe a taxpayer has to request an assessment under the "as if resident" rule, but the specific provisions of a given treaty may have an impact.

Reasons: Procedural rules, such as 227(6), are generally not affected by treaties unless there is a specific provision in the treaty addressing it.

Author: Spiers, Alison
Section: 227(6), 212(1), Canada-Italy Treaty Art. 18 para. 2

Mr. Emmet Hyduk                                                      A. Spiers
Acting Programs Officer                                            2021-090498
Business Technical Support Section
Knowledge Management (Business) Division
XXXXXXXXXX

June 20, 2022

Dear Mr. Hyduk,

RE: Application of subsection 227(6) and “as if resident” (“AIR”) clause in various Canadian tax treaties

This is in reply to your email request dated August 4, 2021, requesting our views on the application of subsection 227(6) of the Act to the AIR clause in various Canadian tax treaties, including Article 18, paragraph 2 of the Canada-Italy Income Tax Convention (“Canada-Italy Treaty”).

All references to the “Act” mean a reference to the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), as amended to the date hereof, (Act) unless otherwise stated.

Issue

If a tax treaty has an As-If-Resident (“AIR”) rule (such as Article 18, paragraph 2 of the Canada-Italy Treaty), may a taxpayer request an assessment of tax under this treaty provision at any point in time, no matter how late, or will subsection 227(6) of the Act limit the timeframe the taxpayer has to request such an assessment to no later than two years after the end of the calendar year in which the amount was paid?

Our Comments

Generally, domestic law must be applied first and treaty provisions may override those provisions. Since subsection 227(6) of the Act is Canadian domestic law, it is applied first, restricting the timeframe for claiming a refund of excess Part XII.5 or Part XIII tax paid to two years from the end of the taxation year in which the income is received. Although Article 18, paragraph 2 of the Canada-Italy Treaty allows a person to request an assessment of tax as if they were resident of Canada, it does not provide a specific timeline for making such a request. Further, the Canada-Italy Treaty does not have any other provisions extending the timeframe to a request a refund of tax in respect of taxation that is not in accordance with the provisions of the Canada-Italy Treaty, so by default, the Canadian domestic procedural limitations, such as subsection 227(6), would apply. Other treaties would need to be reviewed on a case-by-case basis to determine if any of the provisions therein affect the application of subsection 227(6). (footnote 1)

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Yours truly,

Charles Taylor
Acting Section Manager
for Division Director
International Division
Income Tax Rulings Directorate
Legislation Policy and Regulatory Affairs Branch

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:

1 See for example, CRA Document 9402551 dated April 13, 1994.

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