Principal Issues: Whether deemed security is considered to have been provided pursuant to subsection 220(4.51) in a situation where the total amount of tax for which security for departure tax must be provided pursuant to subsection 220(4.5) exceeds the amount of the deemed security?
Position: Yes. An individual is entitled to an amount of deemed security under subsection 220(4.51) even if the total amount of security to be furnished under subsection 220(4.5) exceeds that amount.
Reasons: Wording of the Act.
June 5, 2017
XXXXXXXXXX Central Administration Income Tax Rulings Directorate Sophie Larochelle
2014-056139
Security for departure tax and deemed security - 220(4.5) and (4.51) of the Act
This is in response to your request of December 12, 2014 in which you requested our interpretation of certain aspects of subsections 220 (4.5) and (4.51) of the Income Tax Act (the "Act").
We apologize for the delay in responding to your request.
Unless otherwise indicated, all statutory references herein are to provisions of the Act.
Your Question
For purposes of calculating the security required under subsection 220(4.5), does an individual qualify for an exemption from providing security on the first $100,000 of capital gains even if such gains exceed $100,000?
Our Comments
Subsection 220(4.5) generally permits an individual to make an election to defer payment of an amount of tax payable as a result of the deemed disposition of property under paragraph 128.1(4)(b) ) ("Departure Tax"). When such an election is made, the Minister of National Revenue (the "Minister") must accept, for a given taxation year, "adequate security" furnished by or on behalf of the individual. Where the Minister accepts security under subsection 220(4.5), for the purposes of calculating the interest and penalties payable by the taxpayer, the security amount will generally be treated as if it were an amount paid in respect of the tax payable.
Under the deeming of security under subsection 220(4.51) ("Deemed Security"), individuals who emigrate (other than trusts) are not required to provide security for an amount up to the tax payable on the first $100,000 of capital gains related to the deemed disposition of property at the time of emigration. More specifically, under the formula in subsection 220(4.51), the Deemed Security is generally equal to the lesser of the total amount of those taxes that would be payable for the year by a trust resident in Canada on $100,000 of capital gains (the "Upper Limit") and the greatest amount for which the Minister is required to accept security under subsection 220(4.5) at that time in respect of the emigration year. Thus, in a case where the amount for which the Minister is required to accept security under subsection 220(4.5) in respect of the emigration year is greater than the Upper Limit, the Deemed Security will be limited to that Upper Limit with the result that the individual will have to provide security under subsection 220(4.5) for the excess in order to defer the departure tax.
We are of the view that the wording of subsection 220(4.51) is clear and that for purposes of computing the security required under subsection 220(4.5), an individual would generally be entitled to benefit from the Deemed Security even if his or her capital gain exceeds $100,000, all in accordance with the formula set out above. This position is supported by the Explanatory Notes accompanying the introduction of subsection 220(4.51) which refer to an exemption on the first $100,000 of capital gains, regardless of the total amount of deemed capital gain.
For your information, unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency’s electronic library. A severed copy will also be distributed to the commercial tax publishers, following a 90-day waiting period (unless advised otherwise to extend this waiting period), for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should the taxpayer request a copy of this memorandum, they may request a severed copy using the Privacy Act criteria, which does not remove taxpayer identity. Requests for this latter version should be e-mailed to: ITRACCESSG@cra-arc.gc.ca. In such cases, a copy will be sent to you for delivery to the taxpayer.
We hope that the above comments will be of assistance.
Best regards,
Yves A. Grondin
Specialist, Industry Sector
for the Director
International Operations Division
Income Tax Rulings Directorate
Legislative Policy
and Regulatory Affairs Branch