5 September 2007 External T.I. 2004-0109171E5 - Article XIII of the Canada - U.S. Tax Convention

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: Does Article XIII apply to a U.S. resident's share of a gain realized through a partnership

Position: Article XIII applies

Reasons: Article XIII applies to gains derived by a resident of a Contracting State

								2004-010917
XXXXXXXXXX  						Daryl Boychuk
(613) 948-5274
September 5, 2007 

Dear XXXXXXXXXX:

Re: Article XIII of the Canada-United States Tax Convention

This is in response to your letter of December 22, 2004 in which you asked for our comments on the application of Article XIII of the Canada - United States Tax Convention (Convention) to a taxpayer's share of a capital gain realized by a partnership in the circumstances described below.

• A partnership is formed under the laws of a province of Canada.
• The members of the partnership are two corporations, each of which is, at all times, a resident of the United States (U.S.) and not of Canada for the purposes of the Income Tax Act and the Convention.
• The partnership elects to be treated as a foreign corporation for purposes of the U.S. Internal Revenue Code.
• Neither the partnership nor the members of the partnership carry on business in Canada.
• The partnership owns shares of a Canadian resident corporation (Canco).
• The fair market value of the Canco shares is not derived principally from real property situated in Canada.
• The partnership realizes a taxable capital gain on the shares of Canco, which, for Canadian tax purposes, is treated as being a taxable capital gain of the members of the partnership to the extent of their respective shares thereof.

The situation outlined in your letter appears to relate to a situation involving a specific taxpayer. It is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. For more information about how to obtain a ruling, please refer to Information Circular 70-6R5, "Advance Income Tax Ruling", dated May 17, 2002. This Information Circular and other CRA publications can be accessed on the internet at http://www.cra-arc.gc.ca. Should your situation involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate Tax Services Office ("TSO") for their views. A list of TSOs is available on the "Contact Us" page of the CRA website. Although we cannot comment on your specific situation, we are prepared to provide the following general comments.

Our Comments

Where a member of a partnership is a resident of the U.S. for the purposes of the Convention in the circumstances described in the hypothetical fact situation described above, Article XIII of the Convention would apply in determining if the member's share of the taxable capital gain realized by the partnership is taxable in Canada.

We trust that these comments will be of assistance. We apologize for the delay in our reply.

Yours truly,

Daryl Boychuk
Manager
International Section I
International and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch