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.
XXXX
K.H. Major (613) 957-2124
May 24, 1988
Dear Sirs:
Re: Sale of Trade Mark
This is in reply to your letter dated February 1, 1988 wherein you requested our opinion on the tax consequences of a sale by a United States resident of a trade mark and design mark registered in Canada.
It is the Department's view that a payment (lump sum or periodic) for the use or the right to use any trade mark or design mark is subject to Part XIII tax pursuant to subparagraph 212(1)(d)(i) of the Income Tax Act (the "Act"). On the other hand, a payment for the outright purchase of a trademark or design mark will not be subject to Part XIII tax if it is not dependent upon the use of or production from the trade mark or design mark. Such proceeds of disposition would have to be included in computing income from a business pursuant to section 14 of the Act.
As a result, a payment made by a Canadian resident to a United States resident for the use or the right to use trade mark or design mark will be subject to a withholding of 10 percent of the gross amount of the payment. Gains from the alienation of such assets would also be subject to a withholding of 10 percent if the gains are contingent on production, use or subsequent disposition. As mentioned above, if an outright purchase payment is not dependent upon the use of or production from the trade mark or design mark, the income from the sale will be considered business income. Therefore, if the United States resident has a permanent establishment in Canada, he could be subject to tax on that income pursuant to section 14 of the Act and Article VII of the Canada-United States Income Tax Convention (1980).
We trust that the above comments will be of assistance.
Yours truly,
for Director Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch
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© Her Majesty the Queen in Right of Canada, 1988
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© Sa Majesté la Reine du Chef du Canada, 1988
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