9 September 1992 Income Tax Severed Letter 9206815 - Rental Income of 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.

920681
19(1) Olli Laurikainen
(613)957-2116

September 9, 1992

Dear Sirs:

Re: Canadian Rental Income Earned By Non-Resident

This is in reply to your letters dated February 25, and March 20, 1992. In your letters you enquired about the Canadian tax consequences of investing in a Canadian rental property. You indicate that you are resident in the United States and may rent the property to your son who is resident in Canada.

Since your inquiry concerns contemplated transactions you should be requesting an advance ruling (see Information Circular 70-6R2 attached), or be directing your inquiries to: The International Taxation Office 875 Heron Road Ottawa, Ont. K1A-1A8 Tel#(613)952-3741

The International Taxation Office provides over-the-counter advice on international tax matters. However, we provide the following general comments.

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• 1) Every non-resident person is required to pay Canadian income tax at a rate of 25% on every amount that a person resident in Canada pays to him on account of rent for use in Canada of any property pursuant to paragraph 212(1)(d) of the Canadian Income Tax Act (the "Act"). Article VI of the of the Canada-U.S. Income Tax Convention (1980) confirms Canada's right to such tax where the amount is received by a person who is a resident in the United States.
• 2) Mortgage interest and other expenses associated with the rental property are not deductible in computing the tax referred to in 1) above (Part XIII tax). However, the non- resident taxpayer may elect under subsection 216(1) of the Act to file an income tax return in Canada wherein he may report the rental income and may make any deductions for which he is eligible under the Act (please see Interpretation Bulletin IT- 393R attached).
• 3) If property is rented by a taxpayer to a non-arm's length party for less than fair market value consideration, subsection 69(1) of the Act may be applied to deem the taxpayer to have received fair market value consideration.
• 4) Paragraph 20(1)(c) of the Act does not permit a deduction for interest on money borrowed for the purchase of a property unless the property is acquired and maintained for profit or with a reasonable expectation of profit. Whether or not a rental property was acquired or maintained with a reasonable expectation of profit is a question of fact. Therefore, such a determination can only be made after a review of the particular facts and circumstances of each case.
• 5) The capital portion of a mortgage payment is never deductible in computing income for Canadian tax purposes.
• 6) The Act does not deem income to arise from an owner occupied home. In addition, the costs associated with maintaining a home for the taxpayer's personal use are considered personal or living expenses and the deduction of such expenses in computing income for tax purposes is specifically prohibited by paragraph 18(1)(h) of the Act.

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In addition to Information Circular 70-6R2 and IT-393R, we have attached the 1991 General Tax Guide and Return Federal Income Tax: " Non-residents and deemed residents of Canada" and the 1991 Supplementary Guide: "Rental Income Tax Guide" for your information.

We hope the above will be of assistance to you.

Yours truly,

for Director
Reorganizations and Foreign Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch

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