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:
This is in reply to your letter of June 19, 1986 requesting a technical interpretation on the application of Article XIIIA(2) of the former treaty with respect to the taxation of recaptured capital cost allowance.
In your view, when in 1985 a former Canadian resident disposes of a rental property located in Canada and does not make an election under section 216 of the Income Tax Act (the "Act") in that year he is exempt from tax by virtue of Article XIIIA(2) of the former treaty on any recaptured capital cost allowance.
Our Comments:
Under Canadian tax law a U.S. resident earning income from rentals is normally required to report as rental income any recaptured capital cost allowance arising from the sale of the property in 1985. Such income is subject to 15% withholding tax pursuant to paragraph 212(1)(d) of the Act and Article XI of the former treaty, however since the recaptured capital cost allowance represents "rentals from real property derived from source in Canada" it is exempt from tax by virtue of paragraph 2 of Article XIIIA of that treaty. This is so because under section 99 of the former Income Tax Act, referred to in Article XIIIA, there was no requirement to file a return of income under Part I in the year of disposition. Thus we agree with your view that paragraph 2 of Article XIIIA of the former treaty limits in the circumstances referred to above the tax on recaptured capital cost allowance to nil unless an election is made by the taxpayer under section 216 of the Act or unless he carried on a rental business in Canada.
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© Her Majesty the Queen in Right of Canada, 1986
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© Sa Majesté la Reine du Chef du Canada, 1986
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