3 August 2004 External T.I. 2004-0056441E5 - Canada-Germany Tax Treaty

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.

Principal Issues: Is there any relief under Canada-Germany Tax Treaty for gains arising in Canada?

Position: There is no particular relief.

Reasons: Wording of the Article 13.

XXXXXXXXXX 2004-005644
Fouad Daaboul
August 3, 2004

Dear XXXXXXXXXX:

Re: The Canada-Germany Income Tax Convention (the "Treaty")

This is in reply to your letter of January 13, 2004, wherein you requested our comments in respect of the following question: Is there is a point in time before which a disposition of taxable Canadian property by a resident of Germany under the Treaty the gain of which would not be subject to any Canadian income tax?

Our comments

In general, Article 13 - Capital Gains - of the Treaty provides a contracting state with a non-exclusive right to tax a resident of the other contracting state on her/his gain from the alienation of a property. In this regard, we assumed that your question deals with property that is referred to in paragraphs 1, 2 or 4 of Article 13 (pursuant to paragraph 6 of this Article, gains from the alienation of any property other than those listed in these paragraphs are taxable only in the contracting state of which the alienator is a resident). However, Article 13 does not provide for a so called "fresh start rule" similar to the one described in paragraph 9 of Article XIII of the Canada-U.S. Income Tax Convention (1980).

For the purposes of determining the amount of the capital gain that is otherwise liable to tax in Canada, one should keep in mind that under the Canadian income tax system, any portion of a capital gain that accrued up to the end of 1971 is essentially not liable to tax in Canada. This result is achieved through the application of the Income Tax Application Rules which take into account, when calculating a capital gain on a property that has been owned since before 1972, the fair market value of that property as of "V-day" (i.e., valuation day as of the end of 1971) (see Interpretation Bulletin IT-173R2 and Information Circular IC 72-17R4).

To the extent that Canada has any right under the Treaty to tax the gain derived from the disposition of a property owned by a German resident, such gain must be determined in accordance with the Income Tax Act and the Income Tax Application Rules.

We trust our comments will be of assistance.

Yours truly,

Eric Allard-Pouliot
Acting Section Manager
for Division Director
International and Trusts Division
Income Tax Rulings Directorate
Policy and Planning Branch

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