{"id":5017,"date":"2013-12-31T05:00:00","date_gmt":"2013-12-31T10:00:00","guid":{"rendered":"https:\/\/www.millerthomson.com\/a-non-resident-disposing-of-taxable-canadian\/"},"modified":"2024-12-16T10:46:24","modified_gmt":"2024-12-16T15:46:24","slug":"a-non-resident-disposing-of-taxable-canadian","status":"publish","type":"post","link":"https:\/\/www.millerthomson.com\/en\/insights\/uncategorized\/a-non-resident-disposing-of-taxable-canadian\/","title":{"rendered":"A Non-Resident Disposing of Taxable Canadian Property"},"content":{"rendered":"

This posting was authored by\u00a0<\/em>
\nCheryl Teron, a\u00a0Partner in the Vancouver Office\u00a0of Miller Thomson LLP and<\/em>
\nStephen Rukavina, an\u00a0Associate\u00a0in the Vancouver Office of Miller Thomson LLP<\/em><\/p>\n

A non-resident of Canada may have to pay Canadian income tax on taxable capital gains earned on dispositions of taxable Canadian property.\u00a0 A taxable capital gain is one-half of the capital gain on a capital property. \u00a0A capital gain is the amount the proceeds of disposition of the capital property exceed its adjusted cost base and reasonable selling expenses.<\/p>\n

A non-resident of Canada who sells taxable Canadian property may also be subject to special procedures imposed on dispositions of such property under section 116 of the Income Tax Act<\/i>.<\/p>\n

This article will discuss what constitutes taxable Canadian property, tax treaty relief from Canadian taxation of gains, and the special procedures imposed on dispositions of certain taxable Canadian property by non-residents.<\/p>\n

Taxable Canadian Property<\/h2>\n

The following are the most common examples of \u201ctaxable Canadian property\u201d.\u00a0 Note, taxable Canadian property also includes an option, interest or right in any of the below examples.<\/p>\n

\u00a0Real Property<\/h3>\n

Real or immovable property situated in Canada is taxable Canadian property.\u00a0 For example, residential housing and commercial properties located in Canada are taxable Canadian property.<\/p>\n

Business Assets<\/h3>\n

The assets of a business carried on in Canada are taxable Canadian property.\u00a0 For example, the equipment of a business carried on in Canada is taxable Canadian property.<\/p>\n

Shares<\/h3>\n

Taxable Canadian property includes a share of a corporation (other than a mutual fund corporation) that is not listed on a designated stock exchange if, at any time during the last 60 months, more than 50% of the fair market value of the share was derived directly or indirectly from any combination of (1) real or immovable property situated in Canada; (2) certain Canadian resource properties; and (3) an option, interest or right in (1) or (2).\u00a0 This definition is geared toward catching shares of private corporations.\u00a0 Note, the shares of a resident or non-resident corporation can fall within this definition.<\/p>\n

Taxable Canadian property also includes a share of a corporation that is listed on a designated stock exchange and a share of a mutual fund corporation if, at any time during the last 60 months, two conditions are satisfied.\u00a0 First, 25% or more of any class of shares of the corporation were owned by any combination of the taxpayer who owns the share and parties that do not deal at arm\u2019s length with the taxpayer.\u00a0 Second, the more than 50% of fair market value test described in the paragraph directly above is satisfied.\u00a0 This definition can catch shares of public corporations listed on exchanges such as the Toronto Stock Exchange, TSX Venture Exchange, New York Stock Exchange, and London Stock Exchange.<\/p>\n

Note, a share can also be deemed to be taxable Canadian property for 60 months in certain situations such as if the share was acquired on a tax deferred transaction involving the transfer of taxable Canadian property.<\/p>\n

Interests in Partnerships and Trusts<\/h3>\n

Taxable Canadian property includes an interest in a partnership or an interest in a trust (other than a mutual fund trust or an income interest in a trust resident in Canada) if at any time during the last 60 months more than 50% of the fair market value of the interest was derived directly or indirectly from any combination of (1) real or immovable property situated in Canada; (2) certain Canadian resource properties; and (3) an option, interest or right in (1) or (2).\u00a0 A unit of a mutual fund trust will be taxable Canadian property if it satisfies the conditions, discussed above, for public company shares to be considered taxable Canadian property.<\/p>\n

Note, a partnership interest can also be deemed to be taxable Canadian property for 60 months if the interest was acquired on a tax deferred transaction involving the transfer of taxable Canadian property.<\/p>\n

Treaty Protected Property<\/h2>\n

A non-resident who disposes of taxable Canadian property will not necessarily have to pay tax on any taxable capital gains earned on the disposition.\u00a0 A non-resident\u2019s taxable capital gains on treated-protected property are excluded from Canadian taxation.\u00a0 \u201cTreaty-protected property\u201d means property any income or gain from the disposition of which by the taxpayer would be exempt from tax under Part I of the Income Tax Act<\/i> because of a tax treaty with another country.<\/p>\n

Under the Canada – United States Income Tax Convention<\/i>, assuming the limitation on benefits provision has been satisfied, a United States resident\u2019s gain from the disposition of property is only taxable in the United States unless the property disposed of was one of the following:<\/p>\n