17 March 2003 External T.I. 2003-0183635 - Canadian Citizen Returning to 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 Issues: Tax implications for Canadian citizen non-resident returning to Canada after 10 years abroad.

Position: Question of fact. Contact ITSO.

Reasons: n/a

XXXXXXXXXX 	2003-018363
		Eliza Erskine
March 17, 2003

Dear XXXXXXXXXX:

Re: Canadian Citizen Returning to Canada from Hong Kong

This is in reply to your letter of January 20, 2003, requesting information with respect to the potential Canadian taxation of amounts paid to you after your return to Canada (a) from a Hong Kong "provident fund" and (b) with respect to an apartment located in Hong Kong.

Our Comments

The circumstances outlined in your letter relate to a specific fact situation. We note that written confirmation of the tax implications arising out of a particular fact situation are given by this Directorate only where the circumstances or events are the subject matter of an advance income tax ruling request. Please consult the current version of Information Circular IC 70-6, Advance Income Tax Rulings, which can be found on the Canada Customs and Revenue Agency website at www.ccra-adrc.gc.ca for information regarding obtaining an advance income tax ruling. There is a fee for obtaining an advance income tax ruling. Our Directorate also provides non-binding technical interpretations at no charge with respect to hypothetical scenarios. We do not provide information in the nature of tax advice, however. As a result, we cannot give you a detailed response to your question, and we advise you to consult with a Canadian tax professional. We can offer the following general comments, however, which may be helpful to you.

As you may be aware, Canada imposes tax on the basis of residence, not citizenship. Generally, if you are a resident of Canada, then you are subject to tax in Canada on all of your income from whatever source. For a detailed discussion of how residence status is determined for Canadian tax purposes, please refer to Interpretation Bulletin IT-221R3, Determination of an Individual's Residence Status ("IT-221R3") which can be obtained from our website at www.ccra-adrc.gc.ca under income tax technical publications. For further information or to discuss the tax implications of your particular immigration situation, please contact the International Tax Services Office (ITSO). Full contact information for ITSO can be found toward the end of IT-221R3. Please note that the Canada Customs and Revenue Agency does not provide tax advice, although we will endeavour to respond to any questions you may have concerning Canadian tax liability and filing requirements. For general tax information as well as access to a collection of useful pamphlets and guides designed specifically for persons immigrating to Canada, please visit our website at www.ccra-adrc.gc.ca and follow these links: "Non-Residents" (found under the heading More information for), and "Newcomers to Canada (immigrants)" (found under the heading Individuals). We refer you in particular to pamphlet T4055, Newcomers to Canada.

We understand that you have previously been a resident of Canada, however, the tax rules applicable on immigrating to Canada are generally the same for returning Canadians as for individuals who have never resided in Canada. In particular, individuals immigrating to Canada are subject to paragraph 128.1(1)(b) of the Income Tax Act (the "Act"), which provides that, for purposes of the Act, an individual is deemed to dispose of all of the individual's property (with certain exceptions generally relating to specific types of property located in Canada), for fair market value prior to entering Canada. The property subject to the deemed disposition is then deemed to be reacquired by the individual for a cost equal to the proceeds of disposition from the deemed disposition. Very generally, the effect of this is that, for purposes of computing Canadian tax, an individual who becomes resident in Canada will have a cost base for most of his property that is equal to the fair market value of the property upon entering Canada. As a result, if you own property that appreciates in value after you become a resident in Canada, and then dispose of that property, the cost base that would be used in calculating any Canadian income tax payable (i.e., that would be used in computing whether there were any taxable capital gains) would be determined by reference to the fair market value of the property at the time that you entered Canada. Put another way, the Canadian tax system does not generally calculate capital gains by reference to historic cost (the original cost to you) but rather by reference to the fair market value of the property upon becoming resident in Canada. We recommend that you consult a Canadian tax advisor with respect to application of the immigration rules in the Act with respect to both the "provident fund" and the apartment that you refer to in your letter.

With respect to the "provident fund" specifically, we are unable to provide you with any guidelines as to how the income might be treated for Canadian tax purposes. We are not generally familiar with "provident funds" and in any event, as discussed above, we are not in a position to comment on any specific fact situation outside the context of a request for an advance income tax ruling.

We have two further comments with respect to the immigration rules in the Act as they could affect your future disposition of the Hong Kong property. First, there is a special rule in the Act for individuals returning to Canada that may apply, if the individual so elects, with respect to property that was owned by the individual at the time that he or she left Canada (the "emigration time"). This rule only applies if the emigration time was after October 1, 1996. As you indicate in your letter that you left Canada ten years ago, this rule probably does not apply to you, however, we mention it for information purposes. Second, we note, also for information purposes, that although a tax treaty between Canada and another country may affect the taxation of gains on the disposition of property (and could also possibly affect the taxation of something like the "provident fund" income), Canada does not currently have a tax treaty with Hong Kong and Canadian courts have confirmed that the income tax convention between Canada and China does not apply to Hong Kong.

We trust that our comments will be of assistance to you. If you have any specific interpretative issues regarding residence status determinations or the income tax rules relating to immigration, or if you have comments about IT-221R3, please write to the International and Trusts Division of this Directorate. Questions regarding administrative procedures, including inquiries relating to the filing of any forms or returns, should be directed to ITSO.

Yours truly,

Jim Wilson
Section Manager
for Division Director
International and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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