| January 22, 1990 | |
| Assessing and Enquiries | Rulings Directorate |
| Directorate | Financial Industries |
| Division | |
| T. Murphy | |
| Mr. G. Venner | 957-2747 |
| Director General | |
| File No. 0-0099 |
Subject: Draft Interpretation Bulletin IT-233R2 Lease and Sale - Leaseback Agreements
The enclosed draft bulletin has been prepared by the Financial Industries Division and is now being distributed for review.
We would appreciate receiving by February 12, 1990 your comments with respect to administrative matters that are relevant to positions described in the draft.
21(1)(B)
In our opinion, the 1981 Round Table position is now out of date. It was based on the premise that the statements concerning the treatment of leases made in Interpretation Bulletin IT-233 were purely administrative in nature and not supported by jurisprudence. Today, however, the position on the treatment of leases in the draft bulletin is supported by jurisprudence.
We have also noted that the 1981 Round Table position was formulated before the introduction of the Income Tax Conventions Interpretation Act ("ITCIA"), which is applicable, in the case of tax under Part XIII of the Act, to amounts paid or credited after June 23, 1983. Under the ITCIA, if a term is not defined in the provisions of a convention, it has the same meaning it has for purposes of the Act. In such cases, if the lease agreement is regarded as a disposition of property under the Act, then the payments made by the Canadian lessee to the non-resident lessor are considered to be blended payments of principal and interest, and not rental payments (the interest portion of the blended payment may be exempt from withholding tax by virtue of subparagraph 212(1)(b)(vii)). Conversely, if the payments are described in a definition of rentals in the applicable tax convention, then the payments to the non-resident, in respect of a lease regarded as a disposition of property under the Act, would be rental payments. In both instances, the Canadian lessee is considered to have acquired a property for purposes of the Act.
Director GeneralRulings DirectorateLegislative and Intergovernmental Affairs Branch
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