CRA says file NR4 SUM/NR4 for capital distributions

Canadian estates generally must file CRA Form T2062 clearance application where there is a disposition of a capital interest in an estate or trust to a non-resident of Canada, like to a U.S. beneficiary. This form is generally not required if the value of the interest is not derived from real estate. If it is derived from real estate per the Income Tax Act (“ITA”), it may be exempt under a tax treaty, hence the ITA says then the form is not required. Without a treaty and the ITA says yes to real estate, then the form is required. Reference should also be made to T2062C for a simplified notification where certain conditions are met.

The NR4 SUM/NR4 information due annually March 31st, is to report income credited to a non-resident even though there may be no withholding tax per Part XIII of the ITA per the treaty. For example, most interest income credited to a non-resident is not subject to Part XIII withholding tax. If it was exempt or there was a reduction in rate per a treaty, then there is an exemption code that must be noted in box 18 or 28 of the NR4 slip.

It has been determined that subsection 212(11) of the ITA deems capital distributions to be income even though there is no Part XIII withholding requirement. An “S” exemption code is entered in box 18 or 28 of the NR4 slip to report that there is no withholding tax.

Failure to file this type of information return could result a penalty which is dependent on the number of NR4 slips or in this instance, the number of non-resident beneficiaries. For 1-5 slips, a flat $100 penalty. For more than 5 slips, the penalty is per day to a maximum. For example, 6-10 slips, the penalty is $5 per day up to $500. For 11-50 slips, the penalty is $10 per day to a maximum of $1,000.

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