CRA holds Part XIII tax due on early termination payment

In 2015-0574291I7, the CRA considered whether Part XIII tax was exigible on an early termination payment made by a Canadian resident corporation (Canco) to a foreign resident corporation (Forco).

Canco made the early termination payment to Forco as consideration for the termination of an agreement under which rent would have been payable by Canco for use the property situated in Canada.

Relying on the Federal Court of Appeal’s decision in Transocean Offshore Limited v. The Queen (2005 FCA 104), the CRA concludes that the termination payment will be in lieu of payment of rent for the use of Canadian property and as such withholding tax will apply pursuant to s.212(1)(d) of the ITA.