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.
Revenue Canada Taxation Head Office
March 2, 1984
K.B. Harding
Dear XXXX
Re: Canada-Italy Income Tax Convention - Article 13
This is in reply to your letter of January 19, 1984, wherein you requested our opinion with respect to several questions outlined therein in the following hypothetical situation.
A resident of Italy owns the majority interest in a taxable Canadian corporation which carried on a manufacturing business in Canada. The balance sheet of the manufacturing business indicates that one of the substantial assets of the Canadian corporation is manufacturing equipment which is attached to land and buildings owned by the Canadian corporation in order to finance the equipment, the Canadian corporation borrowed funds and still owes a substantial amount on the loan. The balance sheet does not reflect any goodwill, however, such goodwill is one of its assets. You have also indicated that the Italian resident shareholder intends to "roll'" its shares into a new non-resident holding corporation.
We will reply to your questions in the order in which they were presented:
1) It is our view that the term "immovable property' would be generally equivalent to the term real property and would be determined within the laws of Canada. Whether certain equipment may qualify as "immovable property" is a question of fact which may only be determined after reviewing the facts of the case and the appropriate case law in Canada.
2) The term "principally" as used in paragraph 3 of Article 13 means more than 50 per cent.
3) We are of the opinion that the "principally" test is to be applied at the time of sale.
4) Generally speaking, the valuation measure to be used in evaluating the assets of the corporation would be the net asset values after assigning the debt where it reasonably relates. However, we recognize that there will be circumstances where this test can be manipulated and if there is any evidence of manipulation in contemplation of a share sale, our Department would not feel obliged to accept this net value test, particularly in those circumstances where the increase in value of shares is mainly attributed to an increase in the value of Canadian real estate.
In addition, our Department would not feel obligated to accept the "principally" test where it was clearly indicated that the assets had been manipulated in contemplation of a sale of shares.
5) In valuating the assets of a corporation it is our view that the value of goodwill whether recorded or otherwise should be taken into account.
We trust these comments are satisfactory for your purposes.
Yours sincerely,
Director Provincial and International Relations Division
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1984
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1984
Email this Content