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.
October 7, 1985
C.G. Toussaint
XXXX
Attention: XXXX
Dear Sirs:
This is in reply to your letter dated September 26 wherein you requested our interpretation of new Canada-United States Income Tax Convention (1980) ("Convention") to the following hypothetical situation:
"Prior to the end of the 1985 calendar year, an individual taxpayer and his spouse cease to be resident of Canada for Canadian taxation purposes and become residents of the United States. During 1985, after they moved to the United States and while they are residents of the United States for U.S. domestic tax law purposes, and on a facts and circumstances basis, these individuals dispose of certain taxable Canadian properties with the resulting gains being derived in Canada."
Article XIII of the Convention provides that capital gains derived by a resident of the United States from the alienation of real property situated in Canada may be taxed in Canada. The Convention however contains a transitional rule which states that where any greater relief from tax would have been available under any provision of the former Convention, such provision shall continue to have effect up to December 31, 1985. Under the former Convention, capital gains derived by a resident of the United States from the sale of capital assets in Canada were exempt from tax in Canada. The new Convention will in effect not be applicable for individuals until January 1, 1986, in so far as the disposition of capital assets is concerned.
We therefore agree with your view that in the particular set of circumstances described in your hypothetical situation, Article VIII of the former Convention would apply to exempt from tax in Canada, the capital gains realized by these two United States residents on the disposition of their taxable Canadian properties, provided however that they did not have a permanent establishment in Canada during that year.
We trust that this information will be of assistance to you.
Yours sincerely,
E.E. Campbell Acting Director Provincial and International Relations Division
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© Her Majesty the Queen in Right of Canada, 1985
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© Sa Majesté la Reine du Chef du Canada, 1985
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