18 August 1993 Ruling 9321803 F - Capital Gains - Non-resident Entering Canada

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

Dear XXXXXXXXXX

RE:  XXXXXXXXXX XXXXXXXXXX Advance Income Tax Ruling

This is in reply to your letter of July 12, 1993 requesting an advance income tax ruling on behalf of the above two named individuals with respect to the disposition of their rental property at XXXXXXXXXX

As discussed with you over the telephone on August 6, 1993 we are unable to provide the ruling requested as it contains tax-related calculations and the transaction, though contemplated, is indefinite. The property may or may not sell and the actual date of sale, if any, is not known. Paragraph 14 of Information Circular sets out these exclusions as well as others under which requests for rulings may be refused. Although we are unable to provide a ruling we are able to provide the following general comments.

Our Comments:

Non-residents of Canada may own property in Canada but cannot by virtue of subsection 110.6(13) of the Income Tax Act (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 on 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) of the Act 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 1992, they would not be deemed to be resident in Canada throughout 1992 for purposes of claiming the capital gains deduction in that year until they in fact had been resident for the full 1993 taxation year. This will require filing amended 1992 tax returns following December 31, 1993 as they could not initially claim the capital gain deduction when filing the original 1992 tax returns.

A non-business rental property would fall into the definition of non- qualifying property, therefore, any capital gain arising upon disposition after February 1992 will have to be prorated in accordance with the formula A x B/C where, in general terms, A is the capital gain, B is the number of calendar months in the period that commences with the calendar month (after 1971) in which the property was acquired and ends with February 1992 and C is the number of months in the period that commences with the calendar month in which the property was acquired and ends with the calendar month in which the property was disposed of. Using the capital gain of $152,000 and the dates from your example (property purchased in September 1988 and sold in August 1993), the formula to produce the eligible real property gain would be:

$152,000 x 42/60 = $106,400

Our use of your capital gain amount and similar dates does not imply acceptance of your calculations. As indicated earlier our comments do not constitute an advance ruling and are, thus, not binding on the Department.

As we are unable to provide the ruling requested your deposit will be returned to you shortly.

We trust our comments will be of assistance to you.

Yours truly,

R. Albert for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch