28 September 1990 Ministerial Letter 90M10418 F - Corporate Reorganizations under Canada-U.S. 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.

SUBJECT:  24(1)

As discussed during our telephone conversation of September 27, 1990, we are enclosing the remission request of August 21, 1990 addressed to our Minister by

19(1)

Would you please advise us whether Competent Authority can provide any relief to

24(1)

The facts in brief are these:

24(1)

24(1) maintains that the above transactions did not result in a realization or cashing out of its investment in the "old" shares and therefore taxation of the above gain should be deferred until the shares of the U.S. Sub are disposed of. 24(1) representative cites Article XIII(8) of the Canada-U.S. Income Tax Convention in support of his request for the remission of the tax liability on the gain.

    "The intention of Canadian and U.S. legislators to treat Canadian and United States residents equally in respect of corporate reorganizations not taxable under the taxation laws of one jurisdiction is reflected in paragraph 8 of Article XIII of the Canada-U.S. Income Tax Convention, and also, the foreign merger provisions of subsection 87(8) of the Canadian Income

Tax Act. In the case of a foreign merger, subsection 87(8) of the Canadian Income Tax Act provides tax free roll-over treatment to a Canadian shareholder, being the same treatment afforded to shareholders on an amalgamation of Canadian corporations. In the case of Article XIII(8) of the Convention, where a reorganization is afforded, tax free treatment in the taxpayer's country of residence, the competent authorities under the Convention may provide for deferral of tax under the laws of the other country in order to avoid double taxation. It is submitted that it would be appropriate and in the public interest to afford the analogous treatment herein requested (i.e., of deferral of tax for Canadian income tax purposes) since the particular reorganization is tax free under the taxation laws of the United States".

Since this case involves a ministerial correspondence, we would appreciate whatever priority you could give to our request for an opinion.

Please return the enclosed material with your reply.

Bernhard BuetowChiefTechnical Review SectionTechnical Publications DivisionLegislative Affairs Directorate

SP/hm(18-19) COR "D"