12 September 1985 Income Tax Severed Letter A-1759 - [850912]

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.

D.S. Delorey

XXXX

September 12, 1985

Dear Madam:

This is in reply to your letter of July 30 concerning the provisions of Article XXIV and part 3(b) of Article XXX of the 1980 Canada - U.S. Income Tax Convention (the "Treaty").

Generally speaking, when an individual was taxed by both Canada and the U.S. on the same income, alleviating provisions contained in the law of either country would ensure that there was no double taxation. These alleviating provisions are deficient, however, with respect to a U.S. citizen residing in Canada and earning U.S. sourced property income. The provisions of Article XXIV of the Treaty were designed to overcome this deficiency.

In accordance with the provisions of Article XXIV and part 3(b) of Article XXX of the Treaty, one of your clients has filed amended U.S. income tax returns for the 1976 through 1983 taxation years. These amended returns reflect a reduced U.S. tax liability and thus a reduction in the combined taxes payable for those years to Canada and the U.S.. This reduced overall tax burden is, however, still greater than it would have been had the alleviating provisions of the Treaty been in place during the 1976 through 1983 taxation years. To rectify this situation, you feel that your client should be allowed to file amended Canadian income tax returns for the 1976 through 1983 taxation years, notwithstanding that some of those years are statute barred by virtue of the provisions of subsection 152(4) of the Income Tax Act.

You consider this action to be appropriate on the basis that the wording of part 3(b) of Article XXX of the Treaty has the effect of overriding the provisions of the Income Tax Act. Part 3(b) of the Treaty reads as follows:

"The principles of paragraph 6 of Article XXIV (Elimination of Double Taxation) shall have effect for taxable years beginning on or after the first day of January 1976".

We do not agree with your view. The provisions of paragraph 6 of Article XXIV of the Treaty relates solely to the adjustment of the amount of foreign tax credit allowable in computing the individual's U.S. tax liability. This is evident from the reference therein to paragraph 4(b) and 5(c) of Article XXIV, the preambles of which read as follows:

"For the purposes of computing the United States tax".

In our view, there is nothing contained in Article XXIV or part 3(b) of Article XXX of the Treaty which requires Canada to amend any previous returns or which overrides the restrictive provisions of subsection 152(4) of the Income Tax Act. Hence, the acceptance by the Department of any of your client's amended returns will be governed by the comments in the enclosed Information Circular No. 75-7R3.

We trust the above information will be of assistance.

Yours truly,

for Director Non-Corporate Rulings Division

Articles XXIV and XXX - new U.S. Treaty