9 July 1993 External T.I. 9312055 F - Disposition at Date of Death - Partnerships (4093-W13)

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.

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Attention:  XXXXXXXXXX

Dear Sirs:

RE:  Canada-Germany Income Tax Convention (the "Convention")

This is in reply to your letter of March 17, 1993, addressed to the Toronto District Office, in which you requested a technical interpretation of paragraph 4 of Article 13 of the Convention. Your query relates to the Canadian taxation of the deemed disposition upon date of death of an interest in a partnership by an individual who is a resident of Germany, where the fair market value of the assets owned by the partnership outside Canada exceeds the fair market value of the taxable Canadian properties owned by the partnership throughout the twelve months immediately preceding the disposition of the partnership interest. The facts you presented are as follows:

Facts

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Our Comments:

In your letter you outlined what appears to be an actual fact situation related to completed transactions and events which have taken place. The review of such situations is the responsibility of the District Taxation Offices and it is generally our practice not to comment thereon. However, we are prepared to provide the following general comments which may be of assistance to you.

For purposes of the Act, we are in agreement with your view that a deemed disposition by a non-resident individual of his interest in a partnership, upon his death, should not give rise to Canadian taxation, provided that the fair market value of the properties described in clauses 115(1)(b)(v)(A) to (D) of the Act, owned by the partnership at any time during the 12 months before his death, does not exceed 50% or more of the total fair market value of all partnership property at that time. The Department does not, however, rule out the possibility of the application of GAAR where the assets of the partnership have been manipulated to avoid the application of subparagraph 115(1)(b)(v) in contemplation of a deemed or actual disposition of an interest therein.

In the event that a non-resident does not meet the above conditions and the taxable capital gain from the disposition of his interest in the partnership is required to be included in the computation of taxable income earned in Canada pursuant to subparagraph 115(1)(b)(v) of the Act, the non-resident may be entitled to an offsetting deduction under paragraph 110(1)(f) of the Act in the event that the taxable capital gain is exempt from tax in Canada pursuant to paragraphs 5 and 6 of article 13 of the Convention. However, paragraph 4 of article 13 of the Convention will maintain Canada's right to tax the non-resident on any gain arising from the disposition of his interest in the partnership where the value of such interest is derived principally from immovable property situated in Canada.

We trust you will find the above comments to your satisfaction.

Yours truly.

for DirectorReorganizations and Foreign DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch

C.C.      Toronto District Office      International Tax Group      Larry Forget