6 January 1988 Income Tax Severed Letter 7-2260 - [880106]

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.

International Audit Division Mr. J.A. Calderwood Director

ATTENTION Mr. J. Waszut

FROM - Specialty Rulings Directorate K.B. Harding 957-2129

XXXX

This is in reply to your memorandum of October 28, 1987 concerning the Articles XIII and XXX of the Canada-U.S. Income Tax Convention (Convention).

XXXX

We have reviewed the commentary to the Model Double Taxation Convention issued by the OECD and it does not clarify the matter as to whether the determination of residency is made at the en of the calendar year or not. Based on a letter sent to XXXX by the Provincial and International Relations Division on October 7, 1985 (copy attached) they took the view that the determination was at the end of the year so that an individual who emigrated to the U.S. in 1985 would have the advantage of paragraph 5 of Article XXX of that Convention.

Since the Convention does not specifically address the situation where an individual changes his residency status between the two Contracting States during the year and the Canadian income tax act under section 114 refers to the income for the taxation year (section 249 defines it as the calendar year) we are in the agreement with the position set forth in the attached letter to Deloittes.

You have requested our opinion on the following questions.

(1) Does Article IV of the 1980 Convention apply to XXXX circumstances to deem that he ceased his Canadian residence on January 1, 1985, when the 1980 Convention came into force?

(2) If the answer to #1 above is yes, then does subsection 48(1) apply XXXX on December 31, 1984 rather than July 31, 1985? (If the answer is yes, then XXXX would have realized the capital gains in 1984 as a resident of Canada and, thus, the gains would be fully taxable in Canada.)

(3) If subsection 48(1) applies to XXXX on July 31, 1985, is he eligible to claim the protection of Article XIII(9) of the 1980 Convention and not be taxed on the capital gains that accrued to December 31, 1984 on his U.S. capital properties?

(4) Can XXXX claim the protection of the 1942 Convention (Articles VIII and XIIIA) to exempt him from Canadian tax in respect of the capital gains and recapture of CCA on his taxable Canadian properties disposed of after July 31, 1985, on the basis of the "greater relief" clause of Article XXX(5) of the 1980 Convention?

(5) Does the term "real property" in subparagraph 115(1)(b)(i) include depreciable property?

We will reply to your questions in the order presented.

(1) It is our view that Article IV of the Convention does not deem the taxpayer to have ceased to be a resident of Canada on January 1, 1985.

(2) No reply required.

(3) We are of the view that XXXX meets the conditions of paragraph 9 of Article XIII and could apply that article to deemed dispositions under subsection 48(1) of the Act.

XXXX could claim the protection of the 1942 Convention since he was a resident of the United States at the time of the disposition.

(5) Blacks Law Dictionary defines "real property" as "Land, and generally whatever is erected or growing upon or affixed to land". Accordingly, we are of the view that the term would include any depreciable property which falls within that definition such as building, bridges, etc.

We trust these comments are suitable for your purposes.

for Director Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch