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 Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues: Individual immigrating to Canada.
Position: General discussion.
Reasons: Need much more information.
XXXXXXXXXX 2000-002042
Attention: XXXXXXXXXX
July 14, 2000
Dear Sirs:
Re: Immigration to Canada
This is in reply to your letter of September 22, 1999 to the Surrey Taxation Centre which was received by us on April 13, 2000. In your letter you requested the Canada Customs and Revenue Agency's ("CCRA") views on the income tax consequences under the Income Tax Act ("the Act") in the following situation.
An individual retained his landed immigrant status in Canada during a period when he was resident in Cost Rica. The individual has or may re-establish his Canadian residency status after he sells certain property located in Costa Rica, principally land and other property used in a tree farming business. You asked whether the fixed annual amounts that are to be received by the individual in respect of the sale of such property would be treated as being on account of income or capital for Canadian income tax purposes.
Your request relates to a proposed or completed transaction involving a specific taxpayer. Confirmation of the income tax consequences of completed transactions involving specific taxpayers will only be provided where the request is made to the particular taxpayer's local CCRA Tax Service Office and all the relevant facts and information are provided. Confirmation of the income tax consequences of proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling that is submitted in accordance with the guidelines set out in Information Circular 70-6R3 ("IC 70-6R3") dated December 30, 1996. However, as noted in paragraph 15(e) of IC 70-6R3 if the major issue in an advance income tax ruling involves whether a transaction should be viewed as being on account of income or capital we will be unable to provide a ruling. Notwithstanding the above, we are prepared to offer the following general comments.
When an individual becomes a Canadian resident (i.e., immigrates to Canada) subsection 128.1(1) of the Act generally deems that individual to have disposed of each property owned by him/her immediately before that time for proceeds of disposition equal to the fair market value of the particular property at that time and to have re-acquired each such property so disposed of for a cost equal to the amount of the deemed proceeds. There are also similar deemed disposition rules when an individual ceases to be a Canadian resident (i.e., emigrates from Canada) in subsection 128.1(4) of the Act. The purpose of these deeming rules is to ensure that the proper amount of income or gain accrued from holding the property during the individual's Canadian residency period are subject to income tax in Canada.
It should be noted that certain types of property are excluded from the rules providing for a deemed disposition of property on immigration. These types of property, generally, are those that would be subject to Canadian income tax where such property is owned by a non-resident. Such property includes "inventory" and "eligible capital property", as those terms are defined in subsection 248(1) of the Act, that are used by that person in a business carried on in Canada and "taxable Canadian property" as that term is defined in subsection 248(1). Under a proposed amendment to the Act, property that is referred to as an "excluded right or interest" within the meaning of proposed subsection 128.1(10) of the Act will also not be subject to the deemed disposition rules.
From the limited information contained in your letter the type of property so described does not appear to be excluded from the above deeming rules on immigration. If so, the debt receivable will be deemed to have been disposed of and reacquired by the immigrating individual for its fair market value at the time immediately before the time the individual immigrates to Canada. To the extent that the annual amounts received by the individual exceed the individual's deemed cost of the debt receivable and/or it is reasonable to conclude that a portion of the annual amounts received by the individual while resident in Canada can reasonably be regarded as being interest or of an income nature then such amount will be subject to Canadian income tax.
As noted above, before a final determination of the Canadian income tax consequences of an immigrating individual owning such property can be determined the CCRA would require more information. Such information would include, but is not limited to, details of the particular individual's current and former Canadian residency status, copies of any purchase and sale agreement in respect of the properties in question, copies of any formal valuations done on such properties and information as to whether the vendor and purchaser were dealing with each other at arm's length for the purposes of the Act.
Our comments are provided in accordance with the practice described in paragraph 22 of IC-70-6R3. You can find IC 70-6R3, and most of CCRA's other publications, on CCRA's website at www.ccra-adrc.gc.ca.
Yours truly,
for Director
Reorganizations and International Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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