active to January 1, 1936. Under the terms of paragraph (a) of the convention, both Nations agree that individuals residing in the other State, who are not engaged in trade or business in the taxing State and who have no office or place of business therein, shall not be subject to a rate of income tax exceeding 5 percent for each taxable year in respect of income derived from sources therein, so long as an equivalent or lower rate of income tax is imposed by the other State. Under the same conditions, paragraph (b) provides that nonresident foreign corporations organized under the laws of the other State are not to be taxed at a rate in excess of 5 percent in respect of dividends derived from sources in the taxing State.

It is to be noted that in the case of corporations the reciprocal provisions refer only to dividends, while in the case of individuals they may extend to other types of incomes, such as interest, and that for the convention to be applicable, nonresident individuals and corporations must not be engaged in trade or business in the taxing State or have an office or place of business therein. Furthermore, under paragraph (c) of the convention, either State is at liberty to increase the rate of taxation prescribed by paragraphs (a) and (b), and in such case the other State is released from the requirements of said paragraphs. The types of income to which the convention applies are among those which under the income-tax laws of both the United States and Canada are subject to withholding at source.

The convention effects no changes in the principles and rates of Canadian income taxation on the income which United States residents receive from Canadian sources. Canadians, as prior to the convention, on paying dividends, interest, and copyright royalties to United States residents (individuals or corporations) or other nonresidents of Canada are required to withhold a tax of 5 percent, and on paying patent royalties, rents, etc., 122 percent. (See previous discussions under the respective headings.)

The Canadian regulations with respect to the tax convention, issued in October 1937, pertain principally to the returns that must be made to the Canadian tax authorities by a Canadian addressee receiving income from sources within the United States and contain information as to the United States Revenue Act and regulations for the guidance of Canadian addressees receiving income from the United States.

The Canadian regulations provide that where the Canadian addressee is a nominee or agent who has received income for distribution to or for the account of persons who are nonresidents of Canada, he must deduct an additional 5 percent of the gross income from sources within the United States and remit in United States dollars the sum deducted to the Collector of Internal Revenue, Baltimore, Md., on or before June 15 in the year following the year in which the deduction was made, accompanied by the completed United States Form 1042; such addressee must also file with the Canadian Inspector of Income Tax, Canadian Form USTI and certify that the additional 5 percent tax has been deducted and has been or will be remitted to the United States Treasury. As the convention is retroactive to 1936, the regulations inform Canadian addresses regarding the United States forms that must be filed for United States tax adjustments for the year 1936, and state that, for the

convenience of those interested, the United States forms may be procured through the office of the Canadian Inspector of Income Tax for each district. The Canadian Regulations may be obtained from the Department of National Revenue at Ottawa; price, 10

cents.

The United States regulations with respect to the convention are contained in Treasury Decision 4766, approved October 7, 1937. The tax to be withheld at source by United States withholding agents on gross amounts payable to nonresident alien individuals, fiduciaries, or partnerships resident in Canada amounts to 5 percent in the case of dividends, rents, royalties, annuities, and interest, other than interest on a corporate bond issued prior to January 1, 1934, with a tax-free covenant under which the corporation assumes over 2 percent of the tax, in which case the withholding rate is 2 percent. Salary or compensation for personal services rendered in the United States is not subject to withholding in the case of nonresident aliens, residents of Čanada or Mexico, who enter and leave the United States at frequent intervals.

In the case of a nonresident foreign corporation organized under the laws of Canada, the amount of tax to be withheld by United States withholding agents is 5 percent for dividends, and for other fixed or determinable annual or periodical income 15 percent, except for interest on a corporate bond issued prior to January 1, 1934, with a tax-free covenant under which the corporation assumes over 2 percent of the tax when the tax to be withheld is 2 percent.

Since the convention is retroactive to January 1, 1936, the regulations provide detailed information as to the rates applicable and the adjustments required for the year 1936, together with the procedure to be followed. All United States withholding agents should therefore obtain from the United States Superintendent of Documents, Washington, D. C., a copy of Internal Revenue Bulletin No. 42, of October 18, 1937 (price 5 cents), in which the regulations have been published.

INCOMES FROM ESTATES AND TRUSTS

The income, for any taxation period, of a beneficiary of any estate or trust of whatever nature is deemed to include all income accruing to the credit of the taxpayer, whether received by him or not during such taxation period. Income accumulating in trust for the benefit of unascertained persons or of persons with contingent interests is taxable in the hands of the trustee or other persons acting in a fiduciary capacity, as if such income were the income of a person other than a corporation, and none of the personal exemptions may be taken; furthermore, should more than one such trust be created, substantially all the assets of which are received from one person (whether or not administered by the same or different trustees) and be so conditioned as to fall in ultimately in favor of one beneficiary, class or group of beneficiaries, then the income of the several trusts is taxed as one trust in the hands of such one of the trustees as the Minister may determine. Dividends received by an estate_or_trust and capitalized are taxable income of the estate or trust. In determining the taxable income of deceased persons, interest, rents, royal

ties, annuities, and other income payable periodically are deemed to have accrued by equal daily increment and are apportionable to the date of death. Any amount paid by an estate or trust for the upkeep, maintenance, and taxes of any property which, under the terms of the will or trust is required to be maintained for the use of any tenant for life, and which in any case is in excess of such amount as the Minister may prescribe, is deemed to be taxable income received by such tenant for life (sec. 11). Where a person transfers property in trust and retains any control over the disposition of the corpus of the trust, such donor continues to be liable to be taxed on the income derived from the property or from property substituted therefor as if the transfer had not been made. (Subsec. 3 of sec. 2.) "If the trust income consists of investment income, such as dividends and interest, and the trust is so constituted that the income must be paid to a nonresident beneficiary, there is no tax either against the trust or the nonresident beneficiary," other than the 5-percent tax withheld at source. "If the trust is commercial or carrying on business in Canada, the trust would be taxable as a person resident in Canada. If the trust, although an investment trust, accumulates for a nonresident person who has merely a contingent interest or even a vested interest subject to be divested, the trust would be taxable on the amount annually accumulated. As to rents and royalties, they would be taxed either against the trust or against the nonresident beneficiary, as the conditions of the trust may warrant, but in most cases against the trust." 66

RETURNS

Every person liable to taxation is required to file a return of his total income during the preceding year on or before April 30 in each year; such return must also be made by a person liable to taxation or not upon receipt of a demand in writing from the income-tax officials. A corporation whose fiscal year does not coincide with the calendar year must make a return within 4 months from the close of its fiscal year, and the tax is computed as if such fiscal year coincided with the calendar year within which such fiscal year ends. The Minister may, however, at any time enlarge the time for making any

return.

A company which owns or controls all of the capital stock, less directors' qualifying shares, of subsidiary companies which carry on the same general class of business and have fiscal periods substantially coincident with the owning or controlling company may, in respect of all such companies which carry on business in Canada, elect, before the commencement of the earliest fiscal period of any of the constituent companies in respect of which consolidation is desired, to file a return in which its profits or loss is consolidated with that of all of its subsidiaries carrying on business in Canada. The taxable income under such consolidated returns are taxed at the rate of 17 percent instead of 15 percent. (Subsec. 3 of sec. 35.)

Every agent, trustee, or person who collects or receives or is in any way in possession or control of income for a nonresident must make a return of such income (sec. 38). When any nonresident de

Taxation of Foreign and National Enterprises. Vol. III, p. 62.

faults in the payment of any tax payable, the agent, trustee, or other person who is required by section 38 to make a return of the income of such nonresident must, upon notification by the Minister, deduct the amount of such tax from the income or assets of such nonresident in his hands and pay the tax (sec. 52). In order to insure the due collection of the tax all employers are required to file information returns as to salaries, commissions, fees, bonuses, and other remuneration of directors, agents, and employees who have received more than $1,000 during the calendar year or who were paid at a wage or salary equal to $1,500 or more per annum. Information returns must also be filed by all corporations or associations as to dividends and bonuses paid to shareholders or members, by all debtors paying interest on fully registered bonds or debentures, and by persons acting in a fiduciary capacity. Such returns must be delivered to the Minister on or before the last day of February in each year without any notice or demand being made therefor.

All persons making payments of interest, royalties, rents, annuities, or other fixed and determinable amounts and also contracts relating to the buying and selling and otherwise dealing in stocks, bonds, and other securities may be required to file an information return in such form and of amounts in excess of such sum as may be prescribed by the Minister, together with the names and addresses of the recipients.

Before any bearer coupon or warrant representing interest or dividends payable by Canadian, British, or foreign debtors or check representing such payments by British or foreign debtors is negotiated by or on behalf of a resident of Canada, an ownership certificate must be prepared and presented; the Minister may by regulation extend this provision to such instruments negotiated by and on behalf of nonresidents.

PAYMENT AND ASSESSMENT

Every person liable to pay any tax when filing his return, must compute his tax and pay not less than one-third of the amount thereof and the balance, if any, within 4 months thereafter, together with interest at the rate of 5 percent per annum upon such balance from April 30 in each year to the time payment is made. If a taxpayer pays less than one-third of the tax or fails to make any payment with his return or to pay the balance within the 4-month period, he is liable to additional interest at the rate of 3 percent per annum upon the deficiency from the date of default to the date of payment. After examination of the taxpayer's return, a notice of assessment is sent to him by the Minister verifying or altering the amount of the tax as estimated in the return. Any additional amount found due over the estimated amount must be paid within 1 month from the date of the mailing of the notice of assessment. Taxes found due and unpaid are subject to interest at the rate of 5 percent per annum from the date prescribed for filing the return to the date of payment. If any additional tax is not paid within 1 month from the date of mailing of the notice of assessment, the taxpayer must pay additional interest at the rate of 3 percent per annum upon the additional tax, calculated from the expiration of the 1-month period to the date of

payment; the additional rate of interest, however, is not applied until after the expiry of 4 months from the date when the return was due to be filed.

There is no statute of limitations in favor of the delinquent taxpayers, as section 55 provides that notwithstanding any prior assessment, or if no assessment has been made, the taxpayer shall continue to be liable for any tax and to be assessed therefor and the Minister may at any time assess, reassess, or make additional assessments upon any person for tax, interest, and penalties.

APPEALS AND PROCEEDINGS

Any person who objects to the amount at which he is assessed or who considers that he is not liable to taxation may appeal by serving a notice in writing by registered post to the Minister of National Revenue at Ottawa. The notice of appeal should follow the form provided by schedule 2 of the act and should set out clearly the reasons for appeal and all facts relative thereto. The Minister is obliged to consider the appeal and to notify the appellant of his decision by registered post.

If the appellant is dissatisfied with this decision, he may, within 1 month from the date of the mailing thereof, send to the Minister by registered post a "Notice of dissatisfaction" stating that he desires his appeal to be set down for trial, and including therewith a final statement of the facts, statutory provisions, and reasons which he intends to submit to the court in support of the appeal. The appellant is required to give security for the costs of the appeal to the satisfaction of the Minister in a sum not less than $400; unless such security is furnished within 1 month after the mailing of the notice of dissatisfaction, the proceedings are deemed to be null and void. The Minister is then required to reply, admitting or denying the facts alleged and confirming or amending the assessment or any amended, additional, or subsequent assessment (secs. 58 to 62). If a notice of appeal is not served or a notice of dissatisfaction is not mailed within the time limited therefor, the right of appeal ceases and the assessment becomes valid and binding notwithstanding any error, defect, or omission therein or in any of the proceedings (sec. 69).

Within 2 months from the date of his reply to the notice of dissatisfaction, the Minister is required to transmit to the registrar of the Exchequer Court of Canada the complete record of the case, which is then deemed to be an action in the court ready for trial or hearing. The court, however, may direct the parties to file pleadings. The decision of the Exchequer Court may be reviewed by the Supreme Court of Canada and the Privy Council.

REMEDIES FOR RECOVERY OF TAXES

All taxes, interest, penalties, and costs assessed or imposed under the act are deemed a debt to the Crown and may be recovered by an action in the Exchequer Court or in any other court of competent jurisdiction. The Commissioner of Income Tax, 2 months from the date of mailing of the notice of assessment, may register a certificate for unpaid taxes with the registrar of the Exchequer Court, and obtain a summary judgment thereon. Other remedies