10 March 2011 External T.I. 2011-0395821E5 - Province of Residence

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) Which province has the ability to tax a capital gain realized by a taxpayer?
(2) In which year must the capital gain be included in the computation of the taxpayer's income?

Position: (1) The province of residence, which is generally the one in which the taxpayer is resident as of December 31 of a particular year.
(2) Generally, the year in which the taxpayer is entitled to the proceeds of disposition of the property.

Reasons: Income Tax Act.

XXXXXXXXXX 				2010-039582

March 10th, 2011

Dear Sir :

Re : Province of Residence

This is in reply to your undated letter that we received on February 14, 2011 regarding the disposition of a rental property.

A taxpayer, originally residing in the province of Québec, owned property in that province used in part for personal purposes and in part to earn income from business or property. In 2007, the taxpayer moved from the province of Québec to the province of Ontario. In 2008, the taxpayer sold the property but, because of legal issues, only received the final payment relating to the disposition of the property in March 2011.

You wish to know which province has jurisdiction to tax the gain arising from the disposition of the property. You also wish to know in which taxation year this gain must be included in the computation of the taxpayer's income.

All statutory references in this letter are references to the provisions of the Income Tax Act, R.S.C. 1985 (5th supp.) c. 1, as amended (the "Act").

Our Comments

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. However, we are prepared to provide you with some general comments which may be of assistance.

The situation you have described involves several determinations of fact. However, we are able to confirm that, for the purpose of provincial income tax for a particular taxation year, a taxpayer will generally resident of the province where he is residing on December 31 of that year. There will be situations where the determination of the province of residence of a taxpayer will be more complex and will involve an appreciation of the taxpayer' residential ties in the province. We invite you to consult Interpretation Bulletin IT-221R3 - CONSOLID, Determination of an Individual's Residence Status. This bulletin is attached to our letter.

In terms of the inclusion of the capital gain in your client's income, a capital gain is realized upon the disposition of capital property. Amongst other things, a disposition is an event which entitles the owner of the property to the proceeds of disposition of the property. Thus, upon disposition of a capital property, a taxpayer will generally include the capital gain in the year in which he was entitled to the proceeds of disposition of the particular property. Please note however that a capital gains reserve can be taken in some circumstances. We attach Interpretation Bulletin IT-236R4, Reserves - Disposition of Capital Property (Archived) for additional information.

We trust the above to be satisfactory.

François Bordeleau, LL.B.
Manager
Business and Partnerships Section
Business and Partnerships Division
Income Tax Rulings Directorate

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