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 withholding required under section 116 of the Income Tax Act in respect of land situated in Canada that is held in the inventory of a non-resident vendor who has obtained a "qualified business exemption" from CRA as outlined in paragraph 36 of IC72-17R6?
Position: No, where a "qualified business exemption" has been obtained from CRA and the vendor has provided a copy to the purchaser, the purchaser would be relieved of any liability under subsection 116(5.3) of the Act in respect of the purchase of any property set out in the exemption.
Reasons: The general procedures for issuing a "qualified business exemption" outlined in paragraph 36 of IC72-17R6 were confirmed with the Compliance Programs Branch.
XXXXXXXXXX
2012-047033
M. Gauthier
(613) 948-1143
January 29, 2013
Dear XXXXXXXXXX,
Re: Qualified Business Exemption Section 116 of the Income Tax Act
We are replying to your email of November 18, 2012 in which you asked whether a clearance certificate and/or withholding is required under section 116 of the Income Tax Act (the "Act") in respect of land situated in Canada that is held in the inventory of a non-resident vendor who has obtained a "qualified business exemption" from CRA as outlined in paragraph 36 of IC72-17R6, Procedures Concerning the Disposition of Taxable Canadian Property by Non-residents of Canada - Section 116 ("IC72-17R6").
Section 116 of the Act generally provides reporting and withholding obligations in respect of dispositions of taxable Canadian property by a non-resident. Section 116 also allows for the non-resident vendor to obtain a "clearance certificate" which verifies that the non-resident vendor has made arrangements for the payment of any resulting tax from such dispositions. This clearance certificate would relieve, wholly or in part, the purchaser's obligation to withhold and remit.
Generally, the various rules in section 116 of the Act do not apply to dispositions of "excluded property", a term defined in subsection 116(6). In particular, paragraph 116(6)(a.1) provides that a property that is described in an inventory of a business carried on in Canada by the vendor is excluded property unless that property is real property situated in Canada, a Canadian resource property or a timber resource property. The term "real property" is not defined in the Act but is generally understood to include land. As such, land held in the inventory of a business carried on in Canada by the vendor is not "excluded property" and the reporting and withholding requirements of section 116 of the Act would apply.
However, administratively, the CRA provides an exemption for land held in inventory where the vendor can request a "qualified business exemption" letter from their local tax services office. The exemption is described in paragraph 36 of IC72-17R6, Procedures Concerning the Disposition of Taxable Canadian Property by Non-residents of Canada - Section 116.
The "qualified business exemption" letter would typically state that the purchaser is relieved of any liability under subsection 116(5.3) of the Act in respect of the purchase of any property set out in the exemption. A copy of the letter would be provided to the purchaser who would be directed not to withhold or remit any amount in respect of the sale proceeds in accordance with section 116 of the Act. The letter would also require that upon completion of the transaction the vendor would be responsible for providing details sufficient to meet the information requirements under subsection 116(5.2) of the Act. Please note that since the letters are provided by a local tax services office and are analyzed on a case-by-case basis, the specific wording of the "qualified business exemption" letter and the process for obtaining the exemption may vary.
We hope this information is of assistance to you.
Yours truly,
Terry Young, CPA, CA
Manager, Administrative Law Section
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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