25 April 1997 External T.I. 9709905 - SALE OF P-SHIP INTEREST BY NON-RESIDENT.

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 paragraph 4 of Article XIII of the Canada - U.S. Income Tax Convention applies to exempt from Canadian tax the taxable capital gain arising on the disposition of a partnership interest by a non-resident that constitutes taxable Canadian property.

Position:

Yes.

Reasons:

Partnership interest does not derive its value principally from real property situated in Canada.

		970990
XXXXXXXXXX		Jim Wilson

Attention: XXXXXXXXXX

April 25, 1997

Dear Sirs:

Re: Sale of a Partnership Interest by a U.S. Resident

This is in reply to your letter dated April 3, 1997 in which you requested our opinion regarding the application of paragraph 4 of Article XIII of the Canada-U.S. Income Tax Convention (the "Treaty") with respect to a disposition by a U.S. resident of an interest in a partnership the value of which is not derived principally from real property situated in Canada. For the purposes of our response we have assumed that the taxable capital gain from the disposition of the non-resident's interest in the partnership is required to be included in the computation of taxable income earned in Canada pursuant to subparagraph 115(1)(b)(v) of the Income Tax Act (the "Act").

It is our opinion, subject to the conditions present in paragraph 5 of Article XIII of the Treaty, that paragraph 4 of Article XIII of the Treaty would apply to deny Canada the right to tax the gain arising on such a disposition. In this regard, the non-resident would be entitled to an offsetting deduction under paragraph 110(1)(f) of the Act in the computation of his taxable income earned in Canada.

We should also point out that in your letter you have described the partnership as a "Canadian partnership". The term "Canadian partnership" is defined in subsection 102(1) of the Act to mean "a partnership all of the members of which were, at any time in respect of which the expression is relevant, resident in Canada". As one of the partners is a U.S. resident, we presume that you are using the expression to refer to a partnership which is governed by the laws of one of the provinces of Canada and which carries on its business in Canada.

The foregoing comments represent our general views with respect to the subject matter of your letter. As indicated in paragraph 22 of Information Circular 70-6R3, this is not an advance income tax ruling and is therefore not binding on Revenue Canada.

Yours truly,

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