26 September 1996 Income Tax Severed Letter 9605245 - Article XIII(5) of U.S. treaty

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.

PRINCIPAL ISSUES:

Whether Article XIII(4) of the Canada-U.S. Income Tax Convention would apply when a factual resident of Canada who is a resident of the U.S. for purposes of the Convention acquires and disposes of property not referred to in Article XIII(1) and (2) while being a resident of the U.S. for purposes of the Convention.

POSITION:

Yes

REASONS:

Article XIII(5) would not apply and therefore Article XIII(4) would apply because it appears to be the intention of the Convention and a logical outcome and such a factual resident of Canada should be exempt from Canadian tax with respect to this type of transaction.

960524 XXXXXXXXXX S. Leung

Attention: XXXXXXXXXX

September 26, 1996

Dear Sirs:

Re: Article XIII(5) of the Canada-U.S. Income Tax Convention (the "Convention")

We are writing in response to your facsimile of February 8, 1996 in which you requested a technical interpretation of Article XIII(5) of the Convention with respect to the situation described below.

An individual resident in Canada moved to the U.S. in 1994 and became a resident of the U.S. for purposes of the U.S. tax law. While being resident in the U.S. the individual retains his ties in Canada and is considered to be a factual resident of Canada for purposes of the Income Tax Act (the "Act"). For purposes of the Convention, he is deemed by paragraph 2 of Article IV of the Convention to be a resident of the U.S. after his move to the U.S. in 1994. The individual acquired capital property in Canada (other than real property as defined in Article XIII of the Convention or personal property forming part of the business property of a permanent establishment or fixed base in Canada) after his move to the U.S. the gain of which, but for paragraph 5 of Article XIII of the Convention, would have been exempt from taxation in Canada pursuant to paragraph 4 of that Article.

The situation outlined in your facsimile appears to relate to an actual situation involving a specific taxpayer. Accordingly, the applicable Tax Services Office should be consulted with respect to the income tax liabilities of such a taxpayer. However, we can offer the following general comments.

It is a question of fact whether a person who is a factual resident of Canada could be considered a resident of the U.S. for the purposes of the Convention. However, if an individual acquires and disposes of a capital property of the type described above while being a resident of the U.S. for the purposes of the Convention, the gain, if any, realized on the sale of such capital property by the individual would be exempt from tax in Canada pursuant to paragraph 4 of Article XIII of the Convention.

The above comments represent our general views with respect to the subject matter of your letter. These comments do not constitute an advance income tax ruling and therefore, as described in paragraph 21 of Information Circular 70-6R2, are not binding on the Department.

Yours truly,

for Director Reorganizations and International Division Income Tax Rulings and Interpretations Directorate Policy and Legislation Branch