12 September 1989 Ruling 58423 F - Taxable Canadian Property of a Non-resident

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.

September 12, 1989

This is in reply to your letter of July 10, 1989 concerning the tax treatment of certain transactions.

We will reply to your questions in the order presented in your letter.

1.     A non-resident of Canada is taxable in Canada on capital gains arising from the disposition of "taxable Canadian property" or an interest in such property.  In the case of shares, taxable Canadian property of non-resident would include;

a)     shares of a private corporation, or

b)     shares of a public corporation if at any time, during a 5 year period immediately preceding the disposition of such shares, the non-resident did not deal at arm's length or the non-resident and persons with whom he did not deal at arm's length or the non-resident and persons with whom he did not deal at arm's length owned 25% or more of the issued shares of any class of capital stock of the corporation.

     Accordingly, since the 24(1) shares constitute shares of a public company and you do not meet the conditions of (b) above, the capital gains arising on the disposition of such shares would not be taxable in your hands.

2      a)   Bonds or debentures of a non-resident of Canada do not constitute taxable Canadian property and generally any capital gains arising on the disposition of such property would not be subject to tax in Canada.  However, where a portion or all of such a capital gain can be attributed to accrued interest on the bonds or debentures or the bonds or debentures are disposed of to a resident of Canada, a portion or all of such capital gain as provided in subsections 214(6) and (7) of Income Tax Act may be deemed to be interest and subject to a 25 per cent withholding tax in Canada.

     b)   Where a non-resident of Canada disposes of treasury bill issued after April 15, 1966 the difference between the discounted purchase price and the face value thereof is considered as interest and is exempt from withholding tax by virtue of subclause 212(1)(b)(ii)(C)(I) of the Income Tax Act.  Any capital gain that arises where a treasury bill is sold in excess of the face value will be exempt from tax in Canada, as a treasury bill does not constitute "taxable Canadian property".

3.     Interest paid on a bank account in Canada to a resident of South Africa is subject to 25 per cent withholding tax in Canada.

We trust these comments are suitable for you purposes.

Yours truly,

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