Part XIII Tax
Part XIII tax is a withholding tax imposed on certain amounts you pay or credit to non-residents. These amounts include:
- Pensions, annuities, management fee, estate or trust income and payments for film or video acting services.
You are responsible for withholding Part XIII tax if you are:
- A Canadian resident who pays or credits Part XIII amounts to a non-resident;
- An agent or person who, for a debtor, pays or credits Part XIII amounts when redeeming bearer coupons or warrants;
- An agent or another person who receives Part XIII amounts for a non-resident, from which tax was not withheld;
- Any other person who pays or credits amounts that are taxable under Part I or Part XIII of the Income Tax Act.
Rates of Part XIII Tax
Non-residents have to pay a 25% tax on amounts that are taxable under Part XIII. This rate can be reduced or exemption can be given under the provisions of the Income Tax Act or a bilateral tax treaty between Canada and another country.
As a Canadian payer or withholding agent, you are responsible for withholding and remitting Part XIII tax at the correct rate.
If you pay or credit or are considered to have paid or credited a taxable amount to persons in countries that have tax treaties with Canada, you should verify the rate given in the Income Tax Act first. Then verify if a reduced rate or an exemption applies under the treaty.
You can use the online Part XIII Tax Calculator to determine your Part XIII tax liability.
Beneficial ownership and tax treaty benefits
To apply the correct rate of withholding, you should have enough recent information to prove that the payee:
- is the beneficial owner of the income;
- is resident in a country with which Canada has a tax treaty; and
- is eligible for treaty benefits under the tax treaty on the income being paid.
Beneficial Ownership
Generally, you can accept that the payee is the beneficial owner of the income, unless there is reasonable cause to suspect that the payee is not the beneficial owner.
Although this list does not cover all possibilities, it is reasonable to question whether the payee is the beneficial owner in the following situation:
- The payee is act, even occasionally, as an agent or nominee.
- The payee is reported to be “in care of” another person, or “in trust”.
- The mailing address for paying the income is different from the owner’s registered address.
- The payee is a partnership, a US Limited Liability Corporation, any other flow-through entity, or a co-ownership arrangement.
If the payee is an insurance corporation or pension trust, the CRA will accept that the payee is the beneficial owner of amounts paid to a non-resident.
Residence and eligibility for treaty benefits
The payer, partnerships or other flow-through entities with non-resident partners or members can give you one of the following forms NR301, NR302, NR303, or the information requested in these forms to certify that they are:
- The beneficial owner of the income;
- Resident in a specific tax treaty country; and
- Eligible for tax treaty benefits on the income they receive.
Even if you do not get the form NR301 or the information requested in the form to support the beneficial owner’s country of residence and eligibility for tax treaty benefits, you may apply a tax treaty rate if all of the following are true:
- You obtain complete addresses of residence that are not post office boxes or “care-of” addresses;
- You know that the payee is an individual or the payee is an estate of a United States resident and the executor manages and controls the estate from the United States;
- You have no reason to suspect the information is inaccurate, misleading, or that the payee is not entitled to the tax treaty benefit; and
- You have procedures in place so that changes in the payee’s information will result in a review of the withholding tax rate.
Source of this information: Canada Revenue Agency
To know more about taxation in Canada explore The Accounting And Tax
