2 August 2002 External T.I. 2002-0141325 - Income derived from a royalty

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: Whether the income resulting from the disposition of a royalty is income derived from the royalty?

Position: No

Reasons: Consistent with previous position.

XXXXXXXXXX 2002-014132
T. Cook
August 2, 2002

Re: Non-Resident-Owned Investment Corporation ("NRO")
Subsection 133(8) of the Income Tax Act (the "Act")

Dear XXXXXXXXXX:

We are writing in reply to your letter of May 14, 2002, in which you requested a technical interpretation with respect to whether income resulting from the disposition of a royalty interest by an NRO constitutes "income ... derived from" the royalty for the purposes of subparagraph (b)(iii) of the definition of NRO in subsection 133(8) of the Act. In particular, you have asked us to reconsider our position as set out in technical interpretation # 9300065 (the "1993 Technical Interpretation"). Our position in the 1993 Technical Interpretation was that income resulting from the sale of a petroleum or natural gas royalty would not constitute income derived from royalties for purposes of then subparagraph 133(8)(d)(ii) of the Act.

We can confirm that we have reviewed this issue subsequent to the 1993 Technical Interpretation and that our internal consultations and discussions with the Department of Finance support the view that the 1993 Technical Interpretation correctly interprets the provision. Therefore, our position continues to be that income resulting from the disposition of a royalty interest does not constitute "income ... derived from" the royalty for purposes of subparagraph (b)(iii) of the definition of NRO. We have raised this particular implication of the definition of NRO with the Department of Finance; however, as you know, pursuant to changes announced in the 2000 Budget, NROs are being phased out over a three-year period, effective after February 27, 2000.

We trust that these comments clarify our current position. As stated in paragraph 22 of Information Circular 70-6R5, the opinion expressed in this letter is not a ruling and consequently is not binding on the Canada Customs and Revenue Agency.

Yours truly,

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