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.
Re: Canada-Japan Income Tax Convention, 1965 (the "Convention")-Capital Gains
This is in reply to your letter dated May 7, 1991 whereby you requested our opinion as to the meaning of the term "profits of an enterprise of one of the Contracting States" as used in Article III of the Convention. In particular you requested our opinion as to whether capital gains realized on the disposition of shares by a Japanese enterprise would be "profits of an enterprise of one of the Contracting States".
In our opinion "profits of an enterprise of one of the Contracting States" as that term is used in Article III of the Convention means business income and does not include a capital gain.
In interpreting the Convention it is of course necessary to have regard to the meaning, as set forth in the Convention, of terms specifically defined therein. Pursuant to Article II(1)(j), the term "enterprise of one of the Contracting States" means a Japanese enterprise or a Canadian enterprise, as the context requires. In the context of your inquiry, it would mean "Japanese enterprise". Pursuant to Article II(1)(i), the term "Japanese enterprise" means "an industrial or commercial enterprise or undertaking carried on by a resident of Japan." Having regard to the foregoing provisions of the Convention, the term in Article III in respect of which you request our opinion may be restated and indeed should be restated in its entirety to be "profits of an industrial or commercial enterprise or undertaking carried on by a resident of Japan".
We consider the term "an industrial or commercial enterprise or undertaking carried on by a resident of Japan" to be essentially synonymous with "a business of a resident of Japan". Therefore, we consider the "profits" referred to in Article III of the Convention to be profits from carrying on a business, i.e. business income.
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© Sa Majesté la Reine du Chef du Canada, 1991
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