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.
Principal Issues: (1) Whether a particular property can fit within paragraphs (a) and (b) of the definition of "taxable Canadian property" in subsection 248(1). (2) Whether a capital gain realized on the disposition of real property that is used or held by a taxpayer in a business carried on in Canada is subject to the branch tax.
Position: (1) Yes. (2) Yes.
Reasons: (1) Paragraph (a) of the taxable Canadian property definition refers to real property situated in Canada and paragraph (b) of the definition refers to property used or held by a taxpayer in a business carried on in Canada. Since the definition of "property" in subsection 248(1) includes "property of any kind whatever whether real or personal or corporeal or incorporeal and a right of any kind whatever...", it is our view that property described in paragraph (a) can also fit within paragraph (b) of the definition. (2) By virtue of subsection 219(1.1), capital gains realized on the disposition of real property used or held by the taxpayer in a business carried on in Canada will be subject to the branch tax. If the real property is not used or held by the taxpayer in a business carried on in Canada, the branch tax will not apply on the disposition of such property.
XXXXXXXXXX 2008-029801
S. Bernards
July 28, 2009
Dear XXXXXXXXXX :
Re: Branch Tax - Section 219
This is in response to your email of October 28, 2008 requesting our views on whether capital gains realized on the disposition of real property used or held by a non-resident corporation in a business carried on in Canada are subject to the branch tax under section 219 of the Income Tax Act (the "Act").
The situation outlined in your letter appears to relate to a factual one involving a specific taxpayer. It is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. For more information about how to obtain a ruling, please refer to Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the Internet at http://www.cra-arc.gc.ca. Should your situation involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate Tax Services Office for their views. Although we cannot comment on your specific situation, we are prepared to provide the following general comments, which may be of assistance.
Our Comments
Subsection 219(1.1) of the Act provides that, for the purpose of subsection 219(1) of the Act, the definition of "taxable Canadian property" in subsection 248(1) of the Act is to be read without reference to paragraphs (a) and (c) to (k) of that definition and as if the only interest or options referred to in paragraph (l) of that definition were those in respect of property described in paragraph (b) of that definition.
Paragraph (a) of the definition of "taxable Canadian property" in subsection 248(1) of the Act refers to real property situated in Canada. Paragraph (b) of the definition includes property used or held by a taxpayer in a business carried on in Canada, subject to certain exceptions. Where a property is real property situated in Canada, it clearly fits within paragraph (a) of the definition.
The question is whether such property could also fit within paragraph (b) of the definition.
The term "property" is very broadly defined in subsection 248(1) of the Act and includes any property whatever whether real or personal or corporeal or incorporeal. Given this broad definition, it is our view that real property situated in Canada that is used or held in a business carried on in Canada could also fit within paragraph (b) of the taxable Canadian property definition. As a matter of statutory interpretation, where two provisions overlap, it must be determined whether the provisions are in conflict, and whether it was intended that one or both provisions should apply. Paragraph (b) of the definition imposes a different test than paragraph (a) of the definition. There is no clear evidence in the wording of the provisions alone that the intention was that one provision be exhaustive. The intention of Parliament was to ensure that the types of property listed in the definition are considered to be taxable Canadian property for the purposes of the Act. The fact that two paragraphs of the definition may apply in respect of the same property does not, in our view, result in conflict or inconsistency.
In summary, a capital gain realized on the disposition of real property used or held by a taxpayer in a business carried on in Canada to the extent that it fits within paragraph (b) of the taxable Canadian property definition would be subject to the branch tax under section 219 of the Act. On the other hand, a capital gain realized on the disposition of real property not used or held by a taxpayer in a business carried on in Canada would not be subject to the branch tax. This is consistent with the Department of Finance's Technical Notes which indicate that as a result of the restriction on the definition of taxable Canadian property under subsection 219(1.1) of the Act, only gains and losses that arise on capital property used in carrying on the non-resident corporation's business in Canada are included in the branch tax base amount.
While we hope that our general comments will be of assistance to you, they are given in accordance with the practice referred to in paragraph 22 of IC 70-6R5 and are not binding on the CRA in respect of any particular situation.
Yours truly,
Jenie Leigh
For Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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