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.
Principal Issues: Whether an assessment of Part XIII tax under subsection 227(10) or 227(10.1) in respect of a deemed dividend under the foreign affiliate dumping rules can be made in a situation where the information under subparagraph 212.3(7)(d)(i) is provided after its filing-due date, causing paragraph 227(6.2)(c) to deem the unpaid Part XIII tax liability on the resulting deemed dividend under subparagraph 212.3(7)(d)(ii) to have been paid.
Position: Yes.
Reasons: Based on the wording of the legislation, the Minister has the discretion to make, at any time, an assessment under subsection 227(10) and (10.1), but not a requirement to do so. Therefore, if a Part XIII tax liability has previously been settled by a remittance (deemed or actual) of tax withheld, the Minister may choose not to issue an assessment of that Part XIII assessment as there is no unpaid balance owing, and therefore nothing required to be collected.
XXXXXXXXXX 2024-103970
Julia Clarkson
June 4, 2025
Dear XXXXXXXXXX:
Re: Subparagraph 212.3(7)(d)(ii) deemed dividend and Part XIII
Unless stated otherwise, all statutory references in this document are to the Income Tax Act (Canada), R.S.C. 1985, c.1 (5th Supp.) (Act) or the Income Tax Regulations (Regulations), as amended to the date hereof.
We are writing in response to your October 10, 2024 request for comments clarifying the tax treatment of a deemed dividend under subparagraph 212.3(7)(d)(ii) to a non-resident parent (as described in paragraph 212.3(1)(b)).
More specifically, you have requested our comments on whether an assessment of Part XIII tax under subsection 227(10) or 227(10.1) in respect of a deemed dividend under the foreign affiliate dumping rules can be made in a situation where the information under subparagraph 212.3(7)(d)(i) is provided after its filing-due date, causing paragraph 227(6.2)(c) to deem the unpaid Part XIII tax liability on the resulting deemed dividend under subparagraph 212.3(7)(d)(ii) to have been paid.
We apologize for the delay in providing our response.
Our comments
This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R10, Advance Income Tax Rulings and Technical Interpretations.
Section 212.3 contains the foreign affiliate dumping rules, which can apply to a corporation resident in Canada (CRIC). In certain circumstances, paragraph 212.3(2)(a) deems a CRIC to have paid a dividend (Initial Dividend) to certain non-resident parent entities.
An Initial Dividend might be reduced through an offset against paid-up capital of one or more share classes of the CRIC if the conditions of subparagraph 212.3(7)(a)(i), (b)(i) or (c)(i) are met. If such a reduction occurs, a CRIC is required to provide information under subparagraph 212.3(7)(d)(i) (Form). The Form is to be submitted by the CRIC’s filing-due date (as defined in subsection 248(1) and referred to in subparagraph 212.3(7)(d)(ii)) for its taxation year that includes the dividend time (as defined in subsection 212.3(4)). If the prescribed information is not provided by the required filing-due date, then subparagraph 212.3(7)(d)(ii) automatically deems a dividend (Reduction Dividend) to have been paid to the CRIC’s non-resident parent on the filing-due date.
Part XIII tax liability
Part XIII tax is generally payable when “payment of the income subject to that tax” (endnote 1) is made, or deemed to be made, to a non-resident person. A Reduction Dividend is deemed paid to a non-resident person and is subject to Part XIII tax under subsection 212(2). The Part XIII tax liability with respect to a Reduction Dividend would arise on the CRIC’s filing-due date for the taxation year that includes the dividend time.
As a result of the Reduction Dividend being paid to a non-resident person and being subject to Part XIII tax, the CRIC is required, under subsection 215(1), to withhold and remit Part XIII tax to the Minister. This fact was stated in technical interpretation E 2022-0954801E5, and in our view is still valid.
Accordingly, if a CRIC fails to withhold and remit Part XIII tax as required under section 215, the CRIC is liable to pay the Part XIII tax on behalf of the non-resident person, and is entitled to recover that amount from the non-resident person under subsection 215(6).
Deemed payment of Part XIII tax
Subsection 227(6.2) generally provides a refund of withholding tax paid on a Reduction Dividend in respect of an investment for which an Initial Dividend was deemed paid.
In addition, for purposes of Part XV of the Act, if, after a CRIC has filed a Form after its filing-due date, the Part XIII tax liability in respect of the Reduction Dividend exceeds any amount paid on behalf of that liability, paragraph 227(6.2)(c) will deem that excess amount to have been paid by the CRIC on the day that the Form is filed. Put another way, if the CRIC files the Form after its filing-due date but has not remitted any Part XIII tax with respect to the Reduction Dividend, paragraph 227(6.2)(c) will deem the Part XIII tax liability with respect to the Reduction Dividend to have been paid on the day the Form is filed for the purposes of Part XV of the Act. This is consistent with our comments in technical interpretation E 2022-0954801E5.
As a result of this deemed payment, there would be no need for an amount to be remitted to the Receiver General with respect to the Part XIII tax liability resulting from the Reduction Dividend.
Payment of arrears interest
Paragraph 227(8.3)(b) authorizes the Minister to assess interest on an amount required to be withheld by section 215, beginning on the day on which the amount was required to be withheld and ending on the day that it is paid, or deemed paid, to the Receiver General. As a CRIC that has late-filed the Form is required to remit Part XIII withholding under subsection 215(1), the Minister may assess interest on the late remittance of any Part XIII tax required to be withheld from the resulting Reduction Dividend.
The computation of interest on an unpaid Part XIII tax liability in respect of a Reduction Dividend would begin on the day on which the Part XIII tax would have been required to be remitted and end on the day the Form is filed where the Part XIII tax is deemed paid for purposes of Part XV as a result of the application of paragraphs 227(6.2)(c) and 227(8.3)(b). This is consistent with our comments in technical interpretation E 2022-0954801E5.
To clarify, any amount of interest payable as a result of the late remittance of tax required to be withheld and remitted is required to be paid to the Receiver General.
Assessment of Part XIII tax
Section 227 is found among the collection provisions of Part XV of the Act. Subsection 227(10) grants the Minister the power to assess at any time an “amount payable” of:
- arrears interest under subsection 227(8.3) (see paragraph 227(10)(a))
- Part XIII tax by a person resident in Canada (see paragraph 227(10)(d)).
As noted above, where a CRIC fails to withhold and remit Part XIII tax as required by subsection 215(1), the CRIC is liable under 215(6) to pay the Part XIII tax on behalf of the non-resident person and could be assessed under paragraph 227(10)(d) with respect to the Part XIII tax liability.
Subsection 227(10.1) is similar to subsection 227(10) in many respects. It authorizes the Minister to assess at any time “any amount payable under Part XII.5 or XIII by any non-resident person” (see paragraph 227(10.1)(c)). This non-resident person could include the recipient of a Reduction Dividend.
Subsections 227(10) and (10.1) refer to the assessment of an “amount payable.” In our view, the use of this term is a reflection of the various items that could be assessed under these provisions, be they penalties, interest, Part XIII tax, or some other listed amount. The amount payable being assessed is not the unpaid balance, but the amount of the liability under the Act that is being assessed.
Similar to tax payable “fixed by assessment or reassessment” (as described in subsection 248(2)) representing a tax debt due to the Crown that is recoverable under subsection 222(2), it is our view that an amount payable that is assessed under subsection 227(10) or (10.1) would also represent the full assessed amount of a liability under the Act. If an assessment of Part XIII tax is made under subsection 227(10) or (10.1), it would reflect the assessed amount of the Part XIII tax liability of the CRIC or non-resident person, respectively. Furthermore, if the assessment under subsection 227(10) or (10.1) was for Part XIII tax, we consider the amount assessed to represent tax payable as described in subsection 248(2).
However, a deemed payment under paragraph 227(6.2)(c) does not eliminate a Part XIII tax liability. Rather, it causes the Part XIII tax liability to be settled, or deemed paid, for purposes of Part XV of the Act.
Based on the wording of the legislation, the Minister has the discretion to make, at any time, an assessment subsection 227(10) and (10.1), but is not required to do so.
Therefore, if a Part XIII tax liability has previously been settled by a remittance (deemed or actual) of tax withheld, the Minister may choose not to issue an assessment. As the Part XIII tax liability has been settled, there is no need to inform the CRIC or non-resident person of the amount of the liability, or to enforce collection of an unpaid balance.
We hope our comments have been of assistance.
Yours truly,
Gillian Godson
Section Chief
Administrative Law Section
Specialty Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
ENDNOTES
1 See paragraph 28 of the decision for Lord Rothermere Donation v The Queen (2009 TCC 70).
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