by Marc Weisman of Torkin Manes LLP
As part of my tax and business law practice, I regularly act as counsel to foreign companies establishing operations in Canada. So, I take careful note of Canada Revenue Agency (the “CRA”) Technical Interpretations that apply to international tax situations.
In Technical Interpretation 2010-0387151E5 dated February 10, 2011, the CRA dealt with the following situation:
- a non-resident of Canada is resident in a country that does not have a tax treaty with Canada;
- the non-resident owns shares in a Canadian resident company (“Canco”) whose only asset is real estate in Canada;
- the shares of the Canco are taxable Canadian property;
- Canco redeems its shares held by the non-resident for fair market value; and
- the non-resident and Canco deal with each other at arm’s length.
At issue was whether Canco’s redemption of the non-resident’s shares is subject to two withholdings: under subsections 212(2) and 116(5) of theIncome Tax Act (Canada) (the “ITA”).