23 July 2001 External T.I. 2001-0083815 - LIABILITY OF AN AGENT FOR PART XI TAX

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: Is a carrying broker liable for foreign property tax under Part XI incurred up to the time it is replaced by the successor carrying broker?

Position: Question of fact. Not if they are not also the plan trustee.

Reasons: Subsection 207(2) of the Act is clear that the trustee is personally liable for the tax if not paid on time by the trust.

XXXXXXXXXX 2001-008381
P. Kohnen
July 23, 2001

Dear XXXXXXXXXX:

Re: Liability for Tax on Excess Foreign Property

This is in reply to your e-mail submission of May 10, 2001, requesting our views regarding the liability for reporting and payment of taxes in respect of excess foreign property held in registered plans.

The particular circumstances in your letter on which you have asked for our views appears to be a factual situation involving a specific taxpayer. As explained in Information Circular 70-6R4, it is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. Should your situation involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate district taxation office for their views. However, we are prepared to offer the following general comments which may be of assistance.

The tax on excess foreign content is provided for in subsection 206(2) in Part XI of the Income Tax Act (the "Act"). The tax is payable by any taxpayer described in paragraphs 205(a) to (f) of the Act. Any such tax which is exigible is payable by the trust to which it applies. The plan trustee, as part of their normal fiduciary duties, would typically be expected to remit the payment from trust assets, on behalf of the trust.

Subsection 207(1) of the Act requires that a taxpayer liable for Part XI tax must file a return (a T3IND for a registered retirement savings plan or a registered retirement income fund), and pay any tax owing thereon, within 90 days after the year to which the tax is applicable. The tax year for a deferred plan trust is the calendar year. In accordance with subsection 207(2) of the Act, if the trustee does not remit the tax within 90 days after the end of the tax year, then the trustee becomes personally liable to pay the tax.

It should be noted that the word "trustee" is not defined in the Act or the Regulations. Its interpretation is determined according to the usual meaning of this word along with a review of the facts relevant to a specific case. A number of legal tests are used to determine who is a factual trustee. A trustee holds legal title to property "in trust" for one or more beneficiaries and must execute the trust in accordance with its terms. The trustee owes a fiduciary duty to the beneficiaries of the trust.

Many trust agreements allow the trustee to contract with third parties who, for consideration, will act as an agent of the trustee. These agents can be contracted with to perform a wide variety of the functions which might normally be performed by the trustee. The fact that an agent has agreed to perform one or more of the traditional trustee functions, in return for consideration, would not, in itself, suggest that there has been a change in trustee. One must look to the relevant factors in each specific case to determine the factual trustee.

One factor which would assist in making the determination would be the power to hire and dismiss agents. One would also look to the plan terms and the requirements provided for in the plan for a trustee to transfer responsibility to another party. Whichever entity is the factual trustee, at a given point in time, is the entity which will be held liable to pay any outstanding Part XI tax in respect of the trust, in accordance with subsection 207(2) of the Act.

In regard to your question regarding how to administratively deal with a change of payer on the T3IND tax return, we suggest that the factual trustee contact Ed Williams, Acting Manager of the Trust and Pension Section of the Individual Returns and Payments Processing Directorate with any concerns they may have. Mr. Williams may be reached at (613) 954-0556.

We trust that the above comments are of assistance.

Yours truly,

Wayne Harding
for Director
Financial Industries Division
Income Tax Rulings Directorate