5 January 1988 Income Tax Severed Letter 7-2306 - [Recapture of Capital Cost Allowance Canada-U.S. Income Tax Convention (Convention)]

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.

DATE. January 5, 1988

TO- International Audit Division J.A. Calderwood Director

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

ATTENTION Mr. David Burton

RE: Recapture of Capital Cost Allowance Canada-U.S. Income Tax Convention (Convention)

This is in reply to your memorandum of November 16, 1987 concerning the treatment of recapture of capital cost allowance under the Convention.

It continues to be our general view, for the reasons set out in the letters attached to your memorandum, that Article XIII of the Convention will have application to capital gains derived by a resident of the United States whereas Articles VI, VII, VIII and XIV of that Convention will apply to tax the income, including the recapture of capital cost allowance, which a non-resident earns in Canada.

Paragraph 8 of Article XIII of the Convention permits the Canadian competent authority, in the situations set out therein, to agree to defer the recognition of the profit, capital gain or income (including C.C.A.) for Canadian income tax purposes in order to avoid double taxation. Therefore, the paragraph merely provides for competent authority to make an arrangement with the person acquiring the property to defer the income or capital arising in Canada in a situation where there is a non-recognition (rollover) of that income or capital gain in the United States.

Accordingly, paragraph 8 of Article XIII provides authority to defer taxation of income and capital gains in certain situations but it does not provide for the taxation of such deferrals. The taxation of such deferrals would be in accordance with the appropriate article of the treaty depending on the type and source of such income.

We trust these comments are suitable for your purposes.

for Director

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