24 October 1990 External T.I. 901595 F - Canada-U.S. Income Tax Convention and Large Corporations Tax

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.

19(1)

October 24, 1990

Dear Sirs:

Re:  Canada - United States Income Tax Convention, 1980 (the "Convention") and the Proposed Large Corporations Tax

This is in reply to your letter dated July 13, 1990.

We have difficulty understanding certain parts of your letter and are therefore unable to respond specifically thereto. However, we can make the following general observations concerning the interrelationship of the proposed amendments to the Income Tax Act set forth in section 48 of Bill C-28 as passed by the House of Commons on December 29, 1989 and section 139 of the Draft Legislation to Amend the income Tax Act and Related Statutes issued by the Minister of Finance on July 13, 1990 (the "Proposed Large Corporations Tax") and Article XXIII of the Convention:

1.     Article XXIII of the Convention applies in respect of the Proposed Large Corporations Tax.

2.     By virtue of proposed paragraph 181.1(3)(d) of the Income Tax Act, no tax will be payable under proposed Part 1.3 for a taxation year by a corporation that neither was resident in Canada nor carried on business through a permanent establishment in Canada at any time in the year.

3.     By virtue of proposed paragraph 181.4(a) of the Income Tax Act, the Proposed Large Corporations Tax of a non-resident corporation is based on the carrying value at the end of the year of assets of  the corporation used by it in the year in, or held by it in the year in the course of, carrying on any business carried on by it during the year through a permanent establishment in Canada. The carrying value of any other assets will not increase the tax.

4.     By virtue of paragraph 1 of Article XXIII of the Convention, residents of the United States shall not be entitled to any relief from the Proposed Large Corporations Tax to the extent the tax is based upon real property situated in Canada.

5.     By virtue of proposed paragraph 181.4(d) of the Income Tax Act and paragraph 3 of Article XXIII of the Convention, no Proposed Large Corporations Tax is payable for a taxation year by a corporation that is a resident of the United States in respect of ships and aircraft operated by the corporation in international traffic in the taxation year and personal property (as distinguished from real property) used by the corporation in the taxation year in its business of transporting passengers or goods in international traffic.

Our opinions herein are based upon the amendments to the Income Tax Act proposed, in Bill C-28 as passed by the House of Commons on December 20, 1989 and the Draft Amendments to the Income Tax Act and Related Statutes issued by the Minister of Finance on July 13, 1990 and the assumption that legislation will be enacted that is identical thereto. Furthermore, our opinions are not advance income tax rulings and thus, in accordance with paragraph 21 of Information Circular 70-6R2 dated September 28, 1990, are not considered binding on the Department.

Yours truly,

for DirectorReorganization and Non-Resident DivisionSpecialty Rulings DirectorateLegislative and Intergovernmental Affairs Branch