21 March 2002 External T.I. 2002-0128965 - Canadian Resident; Sale of Foreign PPTY

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:

What are the tax consequences of a Canadian resident owning real property in China selling that property?

Position:

Generally, any capital gain is taxable in Canada. There may be treaty relief under the Canada-China tax treaty.

Reasons:

We provided only brief, general comments, as the incoming memo from the TSO gave us little information and the taxpayer appeared to want tax advice.

XXXXXXXXXX 2002-012896
Eliza Erskine
March 21, 2002

Dear XXXXXXXXXX:

Re: Taxation of a Canadian Resident on Disposition of Foreign Real Property

This is in response to your telephone conversation of March 7, 2002, with an officer of our Toronto Centre Tax Services Office. We understand that you are a resident of Canada and that you own an apartment unit in Beijing, China, which you may sell in the future. You would like to know the tax consequences of selling the apartment unit.

Our Comments

We note that written confirmation of the tax implications arising from particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request. For information regarding applying for an advance income tax ruling, please refer to our Information Circular 70-6R4, Advance Income Tax Rulings, which can be obtained from your local Tax Services Office or from our website at www.ccra-adrc.gc.ca . Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office.

We note further that your request appears to be in the nature of a tax consultation. We cannot respond to your request as such, as the Canada Customs and Revenue Agency does not provide tax planning advice. We are willing, however, to provide you with some general comments on the subject of the tax treatment of Canadian residents who sell foreign real property. We suggest that you may wish to consult with a tax professional. However, if you require additional information regarding your specific tax situation, we invite you to again contact your local Tax Services Office.

Generally, a person who is resident in Canada is subject to tax in Canada on all of his or her income from all sources (including capital gains), including sources outside Canada, pursuant to sections 2 and 3 of the Income Tax Act. Please refer to Interpretation Bulletin IT-221R3, Determination of an Individual's Residence Status, for a discussion of how to determine an individual's residence status for Canadian income tax purposes. This document can be obtained from your local Tax Services Office or from our website at www.ccra-adrc.gc.ca.

As identified above, as a resident of Canada, you will be subject to Canadian tax on any capital gain that may arise on your disposition of the apartment unit referred to above. If your acquisition and subsequent disposition of the apartment unit represents an adventure in the nature of trade, then the income that arises as a result of the disposition of the apartment unit will be considered to be business income and subject to Canadian tax as such. Assuming that you are a resident of Canada for purposes of the Canada-China Income Tax Agreement (the "Treaty"), Canada's right to tax any gain realized on the disposition of the apartment unit will be maintained. However, pursuant to Article 13 of the Treaty, China will also be entitled to tax any gain arising on the disposition of the apartment unit. In such an event, Canada will provide you with a foreign tax credit to offset any tax that you might have to pay to China upon your disposition of the property.

We trust that the above comments will be of some assistance to you.

Yours truly,

Jim Wilson
for Director
International and Trusts Division
Income Tax Rulings and
Interpretations Directorate
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