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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principales Questions:
Est-ce que le terme "alienation" mentionné au paragraphe 8 de l'Article XIII de la Convention fiscale Canada-United Kingdom inclut une disposition présumée au décès.
Est-ce que le terme "income" mentionné au paragraphe 2 de l'Article XXVII de la Convention inclut les gains en capital.
Position Adoptée:
Le terme "alienation" inclut une disposition présumée au décès et le terme "income" inclut les gains en capital, et ce conformément aux commentaires du modèle de convention de l'OCDE de 1992.
Raisons POUR POSITION ADOPTÉE:
Commentaires du modèle de convention fiscale de l'OCDE de 1992.
5-933542
XXXXXXXXXX Carole Pronovost
Attention: XXXXXXXXXX
June 6, 1994
Dear Sirs:
Re: Canada-United Kingdom Income Tax Convention(The Convention)
We are writing in response to your letter dated November 24, 1993. You refer to your letter of July 6, 1992, and our reply dated October 20, 1992, and ask us to reconsider our opinion on the interpretation of paragraph 8 of Article XIII of the Convention as it would apply to a taxpayer resident in the United Kingdom for the purposes of the Convention.
The October 20, 1992, opinion stated that a taxpayer resident in the UK for the purposes of the Convention, a non resident of Canada for the purposes of the Income Tax Act, may be exempted, by virtue of said paragraph 8 of Article XIII (subject however to paragraphs 5(a) and 9 of Article XXIII) from taxation in Canada on the capital gain arising on death from the deemed disposition of shares in a taxable Canadian corporation. You ask us to confirm that interpretation notwithstanding that your client, Mrs. A, is resident but not domiciled in the United Kingdom for income tax purposes, and is therefore taxable in that country only on a remittance basis. Moreover, you note that no income tax will be payable in the United Kingdom on Mrs. A.'s death because in that country an estate tax as opposed to an income tax is applicable on death. Under the Department's interpretation of the Convention, Mrs. A would be granted relief from Canadian tax on the capital gain arising on the deemed realization of her shares in a private corporation at the time of her death, even though neither she nor her estate will be subject to income tax on such gains in the United Kingdom. You point out that a tax treaty normally applies to relieve a person of double tax. If Mrs. A disposes of her shares during her lifetime she would be relieved from Canadian tax only to the extent that such gains are remitted to her in the United Kingdom and that she is subject to tax on such gains there (assuming that the term "income" in paragraph 2 of Article 27 of the Convention includes capital gains). You also ask for confirmation of the fact that the term "alienation" in paragraph 8 of Article XIII of the Convention includes a deemed disposition on death and that the non-application of paragraph 2 of Article 27 of the Convention means that the relief from tax under paragraph 8 of Article XIII will not be restricted and hence will be fully available on Mrs. A.'s death.
It appears that the interpretation you seek relates to a specific fact situation and therefore, we bring to your attention Information Circular 70-6R2 dated September, 1990 and the Special Release thereto dated September 30, 1992, issued by Revenue Canada, Customs, Excise and Taxation. Confirmation with respect to proposed transactions involving specific taxpayers will generally only be provided in response to a request for an advance tax ruling. The opinions provided herewith represent interpretations of the law as it applies generally and may or may not apply to your particular fact situation. These opinions are provided in accordance with paragraph 21 of Information Circular 70-6R2. They are not advance rulings and are not binding on the Department.
Your understanding of our previous interpretation of the Convention appears correct. It is our view that the term "alienation" in paragraph 8 of Article XIII of the Convention includes the disposition of property arising on death. Our view is consistent with the 1992 OECD Model Convention commentary with respect to the interpretation of the term "alienation" as referred to in Article XIII of the Convention which states in part at paragraph 5:
"...The words "alienation of property" are used to cover in particular capital gains resulting from the sale or exchange of property ... and even the passing of property on death."
It is also our view that the term "income" in paragraph 2 of Article 27 of the Convention includes capital gains. However, we do not consider that this provision is applicable with respect to capital gains resulting from deemed dispositions on death since such gains cannot be remitted or received as referred to in that provision. The non-application of paragraph 2 of Article XXVII of the Convention means that the relief from tax under paragraph 8 of Article XIII will not be restricted and that a person could be granted relief from Canadian tax on certain gains on death, notwithstanding that no income tax would be payable at that time in the United Kingdom. This interpretation is consistent with the 1992 OECD Model Convention commentary which states at paragraph 6 that no particular problems arise when the State which has the right to tax does not exercise it at the time the alienation takes place.
We would like to point out that the above interpretation is only valid with respect to persons resident of the United Kingdom for the purposes of the Convention. Article IV of the Convention states that the term "resident of a contracting State" means any person who under the law of that State, is liable to taxation therein by reason of his domicile, residence... or any other criterion of a similar nature. The question as to whether a person is resident of a contracting state for the purposes of the Convention is one of fact and we cannot say from the facts provided in your letter whether the taxpayer referred to in your letter is such a resident.
These opinions do not constitute advance income tax rulings and consequently are not binding on the Department.
We trust that the above comments will be of assistance to you.
Yours truly,
for Director
Reorganizations and Foreign Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1994
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1994
Email this Content