31 August 1989 Ministerial Letter 57778 F - Canada–Israel Income 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.

August 31, 1989

Dear Sirs:

Re:  Disposition of Shares By a Non-Resident Article XIII of the Canada-Israel Income Tax Convention, 1976

This is in reply to your letter of March 20, 1989 wherein you requested our interpretation of Article XIII of the Canada-Israel Income Tax Convention, 1976 (the "Treaty").

The hypothetical fact situation presented is as follows:

1.     The taxpayers have been resident in Israel for 10 years;

2.     They own shares in a private Canadian holding corporation ("Holdco");

3.     Holdco owns shares in a private Canadian operating corporation ("Opco"), which is primarily real estate based (more than 50% of Opco's property is immovable property.

4.     Holdco does not directly own any immovable property.

5.     The taxpayers wish to dispose of their shares in Holdco.

Generally speaking, the Department's position is that, by virtue of the provisions of paragraphs 3 "... shares ... the property of which consists principally of immovable property") and 4 of Article XIII of the Treaty, the taxpayers will not be liable to taxation in Canada on their gain form the disposition of the Holdco shares.  However the provisions of section 116 of the Income Tax Act (the "Act") would apply.

The foregoing opinion is based on the assumption that this is a fact situation where Part XVI of the Act was not a consideration (i.e., this corporate structure was in place for a number of years).

We hope this opinion will be of assistance.  These comments represent our opinion of the law as it applies generally.  As indicated in paragraph 24 of Information Circular 70-6R dated December 18, 1978 this opinion is not a ruling and accordingly, it is not binding on Revenue Canada, Taxation.

Yours truly,

for DirectorReorganizations and Non-Resident DivisionSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch