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.
July 29, 1985
K.B. Harding
XXXX
Dear Sirs:
This is in reply to your letter of June 18, 1985, concerning the taxation of a U.S. citizen resident in Canada on capital gains arising from U.S. stock market transactions.
It is our understanding that you are concerned with the treatment of such a gain and the related foreign tax credits provided in Article XXIV of the Canada-United States Income Tax Convention (Convention).
Generally speaking, where a U.S. citizen is resident in Canada, he would be required to report his world income in his Canadian income tax return, and Canada would be required to provide him with a foreign tax credit pursuant to Section 126 of the Income Tax Act and Article XXIV of the Convention.
It is our view that paragraph 4 of Article XIII provides Canada with the right to tax its residents on the sale of U.S. shares, which do not fall within paragraphs 1, 2 and 3 of that Article, and, accordingly, Canada will permit a foreign tax credit pursuant to Section 126 of the Income Tax Act.
Paragraph 2 of Article XXIX of the Convention permits both Contracting States to tax its residents and, in the case of the United States, its citizens subject to the provisions of that paragraph. However, paragraph 3(a) of that Article states that Canada and the United States must respect certain provisions of the Convention. Since paragraph 4 of Article XIII is not an exception, there is nothing to prevent Canada and the United States from each applying its domestic laws.
Since the taxpayer you are concerned with is a resident of Canada, Canada has the right to tax him on his world income and must provide him with a foreign tax credit in accordance with the rules set out in Section 126 of the Act.
We hope that this is satisfactory for your purposes.
Yours sincerely,
Original Signed by Director Provincial and International Relations Division
c.c.: Gail Perrin
O.P.R.U.
Article XXIV - Canada-United States Income Tax Convention (new) Article XIII - Canada-United States Income Tax Convention (new)
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© Sa Majesté la Reine du Chef du Canada, 1985
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