7 February 1991 Income Tax Severed Letter - Departure from Canada

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.

Dear Sirs:

Re: Request for Technical Interpretation Subsection 48(1) of theIncome Tax Act(the “Act”)

We are writing in response to your letter, dated July 6, 1990, wherein you requested our views on the application of the above- noted subsection in the following hypothetical situation:

• 1. A non-resident (the “Individual”) carries on a business outside Canada (the “Offshore Business”) and earns business income therefrom.
• 2. The individual becomes a resident of Canada and, since he is required to thereafter pay tax on his worldwide income, he pays tax in Canada on the Offshore Business income.
• 3. Against the Offshore Business income, the Individual claims capital cost allowance (“CCA”) on a building, located offshore, (the “Offshore Building”) owned by the Individual and used in connection with the Offshore Business.
• 4. The Offshore Building is not used by the Individual in carrying on any business in Canada and thus is not “taxable Canadian property” as defined in paragraph 115(1)(b) of the Act.
• 5. After a number of years, the Individual takes up residence in another country and becomes a non-resident of Canada.
• 6. Several years later, the Individual disposes of the Offshore Building.

It is your opinion that the Individual would not realize or be deemed to realize recapture of CCA claimed on the Offshore Building on his ceasing to be a resident of Canada and that he would not be subject to tax on any recapture of CCA realized on eventual disposition of the Offshore Building.

Our Comments

Departure from Canada

In our view subsection 48(1) of the Act, which deems a taxpayer to have disposed of certain property immediately before his ceasing to be a resident of Canada, only has application for purposes of subdivision c of Division B of Part I of the Act (the calculation of taxable capital gains and allowable capital losses). It will therefore not apply to deem the Individual to have disposed of the Offshore Building for purposes of subsection 13(1) of the Act.

This position is consistent with the Department's stated views in paragraph 2 of our Interpretation Bulletin IT-451R, dated March 25, 1987, which continues to reflect our opinion.

Actual Disposition

The Individual will be a non-resident when he disposes of the Offshore Building. Subsection 115(1) provides the rules for determining the taxable income earned in Canada by non-residents. Since the non-resident will not be carrying on a business in Canada, there will be no income inclusion for Canada tax purposes on the ultimate disposition of the Offshore Building.

The foregoing expressions of opinion are given in accordance with the practice referred to in paragraph 21 of Information Circular 70-6R2 dated September 28, 1990 and are not binding on Revenue Canada, Taxation.