14 October 1998 Ministerial Letter 9823098 - TRUST LEAVING 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.

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.

XXXXXXXXXX

Dear XXXXXXXXXX:

The Honourable Herb Dhaliwal, Minister of National Revenue, has asked me to reply to your letter of July 19, 1998, concerning the taxation of property when the owner leaves Canada.

Although the confidentiality provisions of the Income Tax Act prevent me from discussing specific cases, I can explain that the Act currently provides that any individual or trust residing in Canada who owns taxable Canadian property may leave Canada without having to pay tax on this type of property at the time of departure. However, when the former resident actually sells the taxable Canadian property, any capital gain realized on the sale is subject to tax in Canada unless the application of this law is affected by a tax treaty Canada has with the new country of residence.

The role of Revenue Canada is to administer and enforce the Income Tax Act as passed by Parliament, while the Department of Finance is responsible for tax policy and any proposed changes to the Act. The concern raised in your correspondence on the taxation of property leaving Canada was one of several tax policy issues raised in the Auditor General’s 1995 report. Those issues were subsequently considered by the House of Commons Standing Committee on Finance in its report released on September 18, 1996.

Even though the committee found that the specific cases referred to in the Auditor General’s report were dealt with in accordance with the existing provisions of the Income Tax Act, the committee recommended that changes be made to the Act to address the tax policy issues. The Department of Finance responded to those recommendations on October 2, 1996, by announcing draft amendments to the Act, which, when enacted, will be effective as of that date. As a result, all persons, including trusts, who leave or transfer property from Canada, will pay tax on most capital gains that have accrued in Canada up to the time of departure. Exceptions to this rule will include gains that accrue on Canadian real estate and Canadian business property, which can always be taxed when they are ultimately sold.

With regard to your personal situation, as a resident of Canada, if you dispose of capital property during 1998 and realize a capital gain, generally, tax will be exigible on such a gain. However, in certain circumstances, you may be able to defer part of the capital gain by claiming a reserve, or eliminate all or part of the gain by claiming a capital gains deduction. For your reference, I have enclosed a copy of the 1997 Capital Gains guide which explains these capital gains provisions in more detail. The 1998 version of this guide will be available later this year and may be obtained at your Revenue Canada tax services office.

Thank you for expressing your concerns on this matter.

Yours sincerely,

Bill McCloskey
Assistant Deputy Minister
Policy and Legislation Branch

Attachment

George Keable
(613) 957-2046
September 16, 1998
982309
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