6 June 1990 Administrative Letter 59386 F - Canada-Italy Income Tax Treaty - Partnership Interest

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.

Attention:  19(1)

June 6, 1990

Dear Sirs:

Re: Article XIII of the Canada-Italy Income Tax Treaty

This is in reply to your letter of January 12, 1990 whereby you requested our interpretation of Article XIII of the Canada-Italy Income Tax Convention (1977) (the "Italian Treaty").

The hypothetical fact situations presented are that a resident of Italy disposes of shares of a corporation incorporated and resident in Canada (other than a public corporation) ("Canco"), which disposition would, subject to the Italian Treaty, be taxable under Part I of the Income Tax Act by virtue of subparagraph 115(1)(b)(iii) and paragraph 2(3)(c) of that Act where:

1.     all of the property of Canco consists of shares of a second corporation resident in Canada, the property of which second  corporation consists principally of immovable property situated in Canada (the "Share Ownership Example");

2.     all of the property of Canco consists of limited partnership interests in a limited partnership organized under the laws of the province of Ontario where the property of such limited partnership consists principally of immovable property situated in Canada (the "Partnership Interest Ownership Example").

Case 1 - The Share Ownership Example

Assuming that in the particular circumstances none of (i) paragraph 2 of Article XIII of the Italian Treaty, (ii) Part XVI of the Income Tax Act or (iii) section 212.1 of the Income Tax Act are applicable, it is our opinion that by virtue of paragraph 4 of Article XIII of the Italian Treaty the Italian resident would not be liable to tax under the Income Tax Act on a capital gain from the disposition of the shares of Canco in the Share Ownership Example.  However, the provisions of section 116 of the Income Tax Act would apply.

As indicated by paragraph 24 of Information Circular 70-6R dated December 18, 1978, the foregoing opinion is not a ruling and accordingly is not binding on Revenue Canada, Taxation.

Case 2 - The Partnership Interest Ownership Example

While the Department has generally taken the position that an interest in a partnership that owns real property is not itself real property, so far as we can determine the Department has not previously taken a position as to whether such a partnership interest may be immovable property.

In Dicey and Morris on The Conflict of Laws, 10th edition, Volume 2 at page 522 the authors state:

     "The distinction between movables and immovables is not co- extensive with the distinction between realty and personality."

At page 525 the authors go on to state:

     "There is no clear English authority on whether a partner's interest in partnership land is an interest in a movable or in an immovable."

Having regard to the apparent uncertainty as to whether a partnership interest may be immovable property, we are not able to express an opinion with regard to the Partnership Interest Ownership Example.

Yours truly,

K.H.M.for DirectorReorganizations and Non-Resident DivisionSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch