A harsh reality

Two relatively recent court cases illustrate the limitations to the recovery by Canadian residents of over-remittances of withholding tax under the Income Tax Act. There are lessons to be learned from these cases on how to structure agreements with nonresidents to ensure that a Canadian resident payer is not disadvantaged. The first case, Sentinel Hill vs AGC, was a decision of the Ontario Court of Appeal and involved a claim of damages against the Crown on the basis of unjust enrichment due to the overpayment of Part XIII withholding tax. The other case, FMC Technologies vs MNR, was a Federal Court decision involving an application for judicial review of a decision by the Finance minister refusing to refund an overpayment of tax under Regulation 105 of the act. The Canada Revenue Agency will stand by its technical legal rights to collect withholding tax under Part XIII and Regulation 105, even if the result is the double payment of tax.