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.
XXXXXXXXXX
Attention: XXXXXXXXXX
Dear Sirs:
RE: Subsection 110.6(5) of the Income Tax Act (the "Act")
This is in reply to your letter of June 18, 1993 requesting a technical interpretation with respect to the availability of the capital gains exemption in the following hypothetical circumstances.
An individual who is a non-resident of Canada owns shares in a Canadian-controlled private corporation that qualify as "qualified small business corporation shares". The shares are to be sold, presumably sometime in 1993 but prior to the individual becoming resident in Canada, in the latter part of 1993.
In your view the individual should be eligible for the capital gains exemption on any capital gain arising from the sale of the individuals shares pursuant to the deeming provision in subsection 110.6(5) of the Act. You opine that an individual would be deemed to be resident throughout the taxation year 1993 where residency takes place anytime before the end of 1993, providing the individual remains resident for all of 1994.
Our Comments:
Non-residents of Canada may own property in Canada but cannot by virtue of subsection 110.6(13) of the Act claim the capital gains deduction while non-resident on any capital gains arising from the disposition of the property while non-resident, however, the period of non-residency will not normally affect the eligibility for the capital gains deduction arising from a disposition after they are resident or deemed resident in Canada. In order to claim the capital gains deduction in a particular taxation year a taxpayer must have been resident in Canada throughout that year. In the year an individual becomes resident or ceases to be resident, subsection 110.6(5) deems the individual to have been resident in Canada throughout the particular year, providing he or she were also resident throughout either the immediately following or immediately preceding year. In the case of individuals becoming resident in Canada part-way through 1993, they would not be deemed to be resident in Canada throughout 1993 for purposes of claiming the capital gains deduction in that year until they in fact had been resident in Canada for the full 1994 taxation year. This would require filing amended 1993 tax returns following December 31, 1994 as they could not initially claim the capital gain deduction when filing their original 1993 tax returns. Though these individuals would be eligible for the capital gains deduction in 1993 by virtue of subsection 110.6(5) of the Act, in our view, subsection 110.6(13) would apply so that the deduction is calculated without reference to dispositions occurring while actually non-resident.
We trust our comments will be of assistance to you.
Yours truly,
R. Albert for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch
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