Principal Issues: Is a diplomatic agent exempt from a penalty under 162(7) as a result of filing a notice of disposition late?
Position: No.
Reasons: The exemption in Article 34 relates to dues and taxes on immovable property held on behalf of the sending State for the purpose of the mission. The property, in this case, was not for the purpose of the mission. Furthermore, the diplomatic agent had left Canada and therefore the privileges and immunities no longer applied.
February 17, 2014
Legislative Policy Directorate HEADQUARTERS
Legislative Policy and Regulatory Income Tax Rulings
Affairs Branch Directorate
Attention: France Marengère Katharine Skulski
(613) 957-8585
2013-049812
Vienna Convention
We are writing in reply to your request for our comments regarding whether the Vienna Convention on Diplomatic Relations (the "Convention") would exempt a diplomatic agent and/or his child from liability for a penalty under subsection 162(7) of the Income Tax Act (the "Act").
Facts
You have explained that a diplomatic agent was posted to Canada. During the posting in Canada, the diplomatic agent purchased a property in another city for the purpose of allowing his adult child to live in it. The diplomatic agent's posting ended in XXXXXXXXXX, at which time he left Canada and disposed of XXXXXXXXXX of his interest in the property to his child. The child continued to live in the property until he left Canada in XXXXXXXXXX. In XXXXXXXXXX, the property was disposed of at a loss and an application for a certificate of compliance pursuant to subsection 116(4) of the Act was made. You explained that the application was filed late. It is your opinion that both the diplomatic agent and the child are liable to a penalty under subsection 162(7). You have asked for our comments in relation to the disposition in XXXXXXXXXX.
Our Comments
Article 34 of the Convention provides that a diplomatic agent is exempt from all dues and taxes, personal or real, national, regional or municipal except if the dues and taxes are on private immovable property situated in the territory which is not held on behalf of the sending State for the purpose of the mission. It is our view that as the immovable property in question was not held on behalf of the sending State as part of the mission, the diplomatic agent would not be exempt from dues and taxes in relation to the immovable property. This is evidenced by the fact that the property is located in a different city from the diplomatic agent and was retained for a period of XXXXXXXXXX years after the diplomatic agent left Canada.
Article 39 provides that when the functions of a diplomatic agent have come to an end, the privileges and immunities enjoyed by the diplomatic agent shall normally cease at the moment when he or she leaves the country, or on expiry of a reasonable period in which to do so. Therefore, even if the house would have otherwise been exempt because of Article 34, given that the diplomatic agent left Canada and did not dispose of his interest in the property until XXXXXXXXXX years after he left Canada, he would not benefit from the privileges or immunities under the Convention for this reason as well.
For the same reasons, the convention would not exempt the child from taxes.
On the basis of the foregoing, it is our view that the Convention would not exempt the diplomatic agent or his child from potential liability under the Act. Therefore, the Minister could assess a penalty pursuant to subsection 162(7) of the Act, although you may wish to consider exercising discretion in assessing the penalty given that, as we understand it, there was a loss on the property and, consequently, no tax was payable.
We trust that these comments will be of assistance.
Yours truly,
Terry Young, CPA, CA
Manager, Administrative Law Section
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
