19 April 2002 Ministerial Correspondence 2002-0130414 - Taxation of property leaving Canada

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

PRINCIPAL ISSUE:

Question concerned CCRA's non-assessment of a particular trust.

Position:

Referred to changes in the law enacted by Bill C-22 which ensure that all persons who leave Canada or transfer property from Canada will generally realize a deemed disposition.

XXXXXXXXXX

Dear XXXXXXXXXX:

The Honourable Elinor Caplan, Minister of National Revenue, has asked me to reply to your letter of March 5, 2002, concerning the fairness and integrity of the tax system with respect to the taxation of property when the owner leaves the country.

The confidentiality provisions of the Income Tax Act preclude me from divulging information from a taxpayer's file without his or her written authorization. These provisions are fundamental to the integrity of our self-assessment system and I assure you that the Canada Customs and Revenue Agency (CCRA) takes very seriously its responsibility to safeguard the confidentiality of taxpayer information obtained for the purpose of administering the Act. I can only offer the following general comments that will clarify some of the issues related to the concerns raised in your letter.

The CCRA is responsible for administering and enforcing the Act, while the Department of Finance is responsible for tax policy and any proposed changes to the Act. The CCRA is committed to applying the tax legislation consistently and fairly, which includes collecting the full amount of tax owing under the law. However, the amount of tax payable for a particular year is based on the law that is in force at that time, and the CCRA does not have the discretion to change the law.

The recent court case referred to in your letter concerning a possible loophole that favours certain taxpayers pertains to a transfer of property that took place in 1991. At that time, the Act provided that a person residing in Canada who owned taxable Canadian property could leave the country without having to pay tax on this type of property at the time of departure. However, when the former resident sold the taxable Canadian property, any capital gain realized on the sale was subject to tax in Canada, unless Canada's right to tax the gain was affected by a tax treaty between Canada and the former resident's new country of residence.

As a result of concerns raised in the Auditor General's 1995 report in respect of the CCRA's handling of this matter, the rules governing such transfers and the inherent tax policy issues were considered by the House of Commons Standing Committee on Finance in its report released in September 1996. Even though the committee found that the case was dealt with in accordance with the existing provisions of the Act and that there was no evidence of wrongdoing, it recommended that the Act be amended to address the tax policy issues.

The Department of Finance responded to the recommendation by amending the Act. Consequently, any person who leaves the country or transfers property from Canada on or after October 2, 1996, pays tax on most capital gains that have accrued in Canada up to the time of departure. Exceptions to this rule include gains that accrue on Canadian real estate and Canadian business property, which can always be taxed in Canada when they are ultimately sold.

The court case itself involved one individual's court challenge regarding the tax affairs of another. While the courts permitted the challenge to proceed, they agreed that it should proceed under special management of the court in order to protect taxpayer confidentiality. On December 19, 2001, the court dismissed the individual's action. In doing so, the court found that there was no bad faith administration or preferential treatment provided to the particular taxpayer by the CCRA.

Thank you for bringing your concerns to the CCRA's attention.

Yours sincerely,

Bill McCloskey
Assistant Commissioner
Policy and Legislation Branch

G.W. Keable
957-2046
2001-013041
March 27, 2002
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