CRA confirms that negative ACB gains of non-residents from Canadian real estate or resource LP interests are exempt from tax

S. 40(3.1) deems the holder of an LP interest to realize a capital gain when the ACB calculation is otherwise about to go negative, but only goes on to deem there to be an associated disposition of property at that time for purposes of the capital gains deduction.  CRA has confirmed that this means that a negative ACB gain of a non-resident from holding an LP interest which is taxable Canadian property is exempt from capital gains tax – but has drawn Finance’s attention to this anomaly.

Although not mentioned by CRA, the same result arguably occurs when the non-resident realizes a negative ACB gain on shares which are taxable Canadian property.  S. 40(3) deems the non-resident to realize a gain from a disposition of the shares – but only deems the non-resident to have disposed of the shares in the year for limited purposes not including s. 2(3)(c).

Summaries of 18 June 2014 T.I. 2011-0417491E5 and 18 June 2014 T.I. 2011-0421481E5 under s. 40(3.1).