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HMRC internal manual

Double Taxation Relief Manual

HM Revenue & Customs
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Double Taxation Relief Manual: Guidance by country: Canada: Underlying Tax

Documents needed to support the underlying tax claim.

The accounts and page of the T2 Corporation Income Tax Return showing the federal income tax together with the total provincial and territorial tax need to be sent to the Underlying Tax Group. [Part 1.3 tax on large corporations should be excluded from the claim as it is a tax on capital and is inadmissible for double taxation relief (see DT 4603).] The taxes assessed by Alberta, Ontario and Quebec are not included on this return. Where taxes have been paid in these provinces, the pages of the separate returns/assessments showing the Alberta, Ontario and/or Quebec taxes should also be provided. Profits for the year ended 31 December 2001 are assessed in the tax year ended 31 December 2001.

Treatment of dividend refunds/refundable dividend tax

If the T2 Corporation Income Tax Return shows amounts entered under ‘Dividend refund and ‘Refundable dividend tax’, reduce the Federal tax by the dividend refund up the amount of the refundable dividend tax paid in the same year. Where a refund is greater than the refundable dividend tax, reduce the Federal tax of the immediately preceding year up to the amount of the refundable tax paid in that year and so on.  

When a distribution of profits in the form of a dividend is made by a non-resident owned investment corporation (‘NRO’) the income tax on the profits used is refunded. Since the tax is potentially refundable in full, it is not available for credit. Credit is however, due for any withholding tax suffered.