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.
May 6, 1993
Carole Gouin-ToussaintRulings Directorate Director General
Attention: E. Makheil
Canada-Czechoslovakia lncome Tax Convention (the "Convention")
This is in response to your verbal request that we review the letter dated May 4, 1993 to XXXXXXXXXX
Paragraph 3, Page 2.
The father must clearly establish that he is a dual resident (i.e. that by virtue of one or more of the criteria in paragraph 1 of Article 4 of the Convention he is taxed in both Canada and Czechoslovakia on his world income) before we are prepared to apply the tie-breaker rules set out in paragraph 2 of Article 4 of the Convention.
Where the father is considered a dual resident under the Convention, he would be required to provide evidence in his income tax return of the factors considered in determining the tie-breaker rule and the provisions under the Convention that provided him with and exemption or reduced rate. If Canada agrees that the tie-breaker rule goes in favour of Czechoslovakia, the father will be taxed in Canada as set out below. However, where Canada disagrees with the taxpayer and/or the Czechoslovakia tax authorities the matter would have to be settled by competent authority in accordance with Article 25 (Mutual Agreement Procedure) of the Convention. In summary, we are basically concerned that the father, in reading the letter, may get the view that he can make the final determination as to where he is a resident in cases where he has dual residence.
It could be made clearer that where an individual is a dual resident, the tie-breaker rule in the Convention is only for the purposes of applying the provisions of the Convention. If after applying the tie-breaker rule in the Convention the father was considered to be a resident of Czechoslovakia for purposes of the Convention, he would continue to be considered a resident of Canada under the Canadian Income Tax Act (the "Act") and he would be provided with an exemption under paragraph 110(1)(f) of the Act in respect to any exemption provided under the Convention and the other income would only be taxed at the rate permitted in the Convention.
Paragraph 1, Page 3.
Based on evidence provided, you could indicate that the tie-breaker rule may well go in favour of Canada since his personal and economic ties, on the surface, appear to be closer to Canada, since his wife and family continue to live in this country. However, Revenue Canada would, as in any particular case, have to review the other personal and economic relations in greater detail before making a final determination on the tie-breaker rule.
Paragraph 3, Page 3.
Paragraph 1 of Article 13 (Capital Gains and Profits) of the Convention provides
Profits and Gains derived by a resident of a Contracting State from the alienation of immovable property may be taxed in the Contracting State in which such immovable property is situated.
In the case of a Canadian resident (as determined under the tie-breaker rule), this provision permits Czechoslovakia to tax gains arising from the disposition of real property (immovable property) situated in that country. However, the article does not deny Canada (the state of residence of the father) the right to tax gains from the alienation of real property situated in Czechoslovakia. Any relief from double taxation arising in such a situation would have to be provided by Canada (the state of residence).
If the father was considered a resident of Czechoslovakia (under the tie-breaker rule), the Convention would not prevent Canada from taxing Canadian sourced income.
We trust these comments will be useful in responding to the taxpayer.
Section Chief Foreign Section Reorganizations and Non-resident DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch
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