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.
24(1) 5-8966
G. Arsenault
(613) 957-2126
Attention: 19(1)
June 18, 1990
Dear Sirs:
This is in reply to your letter of October 2, 1989 wherein you requested our opinion on the interpretation of Article 21 of the Canada-Australia Income Tax Convention (1980) (the "Treaty") in the following hypothetical situation:
- (a) Canco, a Canadian private company carries on business in Canada;
- (b) Aco, an Australian company, holds 100% of shares of Canco;
- (c) Aco, which does not carry on business in Canada, disposes of the shares in Canco to USCo, a U.S. company, and capital gain is generated from the disposition;
- (d) The contract of sale is initiated, negotiated and concluded outside of Canada.
We concur with your interpretation that the term "income" in Article 21 of the treaty includes capital gains. We consider the law to be settled that a capital gain is not income. We understand that the law of Australia is consistent with Canadian law in this regard. We also note that the Treaty mentions gains specifically where it is intended that these be included and that Article 13 of the Treaty refers to both "income" and "gains" and thus recognizes the distinction between the two.
In consequence of the foregoing, it is our opinion that the Treaty does not apply to relieve Aco from Canadian tax under the Income Tax Act on the capital gain realized on the disposition of the shares of Canco in the hypothetical fact situation set forth above.
Yours truly,
for Director Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch
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