Canada significantly expands back-to-back withholding rules

Overview

Bill C-29, Budget Implementation Act, 2016, No. 2 (the Bill), which was first read on October 25, 2016, significantly expands the back-to-back rules for non-resident withholding tax. The Bill, expected to be enacted before year end:

• clarifies how the rules apply to arrangements with multiple intermediaries
• adds character substitution rules
• extends the rules to address rents and royalties, and
• introduces back-to-back rules for shareholder loans.

Taxpayers impacted by the new rules should prepare accordingly because the new rules will apply soon. In particular:

• The withholding tax changes, including extension of the rules to back-to-back rents and royalties, apply to amounts paid or credited after 2016; these changes apply to interest, rents, and royalties accrued in 2016 or earlier but paid after 2016.
• The new shareholder loan rules generally apply to debts outstanding after March 21, 2016.