| 19(1) | File No. 5-8007 |
| K.B. Harding | |
| (613) 957-2129 |
June 14, 1989
19(1)
This is in reply to your letter of April 8, 1989 wherein you requested our opinion concerning investments made by non-resident Canadians investing in Canada while living outside the country.
Generally speaking, the Income Tax Act (the "Act") provides for an exemption from withholding tax on interest paid on bonds, debentures, notes, mortgages, hypothecs or similar obligations of or guaranteed by, the Government of Canada issued after April 15, 966. Paragraphs 1 to 3 of Interpretation Bulletin IT-155R2 (copy enclosed) outline our views on this matter. It should be noted that the words "and before 1986" used in paragraph 2 should be deleted since the 1984 Bulletin does not reflect does not reflect the present wording of the Act.
Page 6 of the booklet titled, Living Outside Canada (copy attached), outlines the general types of property (taxable Canadian property) which are subject to capital gains tax in Canada when disposed of by any non-resident of Canada. The reference to "shares of certain public companies" refers only to those situations where the non-resident person, persons with whom the non-resident person did not deal arm's length, or the non-resident person and persons with whom he did not deal at arm's length stock of the corporation during a period of 5 years immediately preceding the disposition of the shares. The disposition of houses (real property) and certain stocks will be subject to capital gains tax. As the term "fixed income securities" is not specific enough, we are not certain whether or not it qualifies as taxable Canadian property.
Page 4 of the attached "Capital Gains Tax Guide" outlines the calculation of the capital gain on the disposition of taxable Canadian property by both residents and non-residents. It should be noted that the reference to 2/3 in Example 1 and 2 should read 3/4 for years after 1989.
Page 6 of the booklet titled "Living Outside Canada" also outlines the procedures to be followed when disposing of taxable Canadian property. Generally speaking, when a non-resident proposes to dispose of taxable Canadian property he is required to notify Revenue Canada, Taxation on Forms T2062 or T2062A and make a payment on account of the tax or provide the Minister with acceptable security. When an individual complies with the above he will be issued a Form T2068, certificate of compliance.
Where the non-resident does not notify the Department of the disposition or the property is sold for an amount in excess of the certificate limit, the purchaser is required to pay specific amounts to Revenue Canada, on behalf of the non-resident seller and is permitted to withhold an amount equal to the amount of such payments from any amount he is required to pay to the non-resident seller. The non-resident seller is required to file an income tax return for the year in which the sale takes place and any refund owing to the non-resident or tax owed by the non-resident is settled at this time.
We trust these comments are adequate for your purposes.
Yours truly,
for Director Reorganizations and Non-Resident Division Specialty Rulings DirectorateLegislative and Intergovernmental Affairs Branch