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: Are determinations under paragraph VIII, 6 made on a property-by-property basis or as an aggregated class?
Position: property-by-property basis
Reasons: Language of the Convention, treatment of similar provisions under the Income Tax Act.
Eli Kae Moore
February 14, 2012
Dear XXXXXXXXXX ,
Re: 183 day test in Paragraph 6, Article VIII of the Convention Between Canada and the United States of America With Respect to Taxes on Income and on Capital
We are responding to your electronic message of November 18, 2011 in which you requested the Canada Revenue Agency's views regarding the application of the 183 day test in Article VIII, paragraph 6, of the Canada-US Tax Convention. Specifically, you asked us if the 183 day test is applied on a property-by-property basis such that only income related to certain vehicles used in the other Contracting State for more than 183 days in any twelve-month period should be subject to withholding taxes, or instead, if the test is applied to all vehicles as a class.
Time determinations under Article VIII, paragraph 6, are made on a property-by-property basis so that profits derived from the use, maintenance, or rental of property not expected to be used in the other Contracting State for an aggregate of more than 183 days in a twelve-month period is exempt from taxation in the other Contracting State.
For example, if an enterprise of a Contracting State derives profits from the rental of a boxcar and it is not expected that the boxcar will be used for more than 183 days in the other Contracting State, the profits from that rental are not subject to taxation in the other Contracting State, and the renter of the boxcar does not need to withhold the 10% otherwise applicable to the rental payment under Article XII.
We point out that the Income Tax Act contains a general anti-avoidance rule which may apply to deny a tax benefit unless it is reasonable to consider that a transaction or series of transactions has been undertaken or arranged primarily for bona fide purposes other than to obtain a tax benefit.
We trust these comments are of assistance.
International Section II
International and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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