F. B. Fontaine (613) 957-2140
January 4, 1988
Dear
Re: Gift of Taxable Canadian Property by a U.S. Resident
XXXX
By virtue of subparagraph 69(1)(b)(ii) of the Income Tax Act (the "Act") a taxpayer will be deemed to have received proceeds of disposition equal to the fair market value of his interest in a property which is disposed of by way of a gift. If such proceeds of disposition exceed the cost (or adjusted cost base) of the taxpayer's interest in the property he will realize a capital gain.
Real property or an interest in real property situated in Canada is considered to be "taxable Canadian property" as that term is defined in subsection 248(1) of the Act. In accordance with 2(3) and 115(1) of the Act, taxable capital gains realized by a non-resident on the disposition of taxable Canadian property are subject to tax in Canada.
Section 116 of the Act requires that a tax be paid by the nonresident vendor (or grantor in the case of a gift) of a taxable Canadian property. In certain circumstances the purchaser (or grantee) may be liable for the tax.- We enclose a copy of Information Circular 72-17R3 dated May 8, 1987 which explains the procedures to be followed when a non-resident disposes or proposes to dispose of taxable Canadian property, the amount payable on account of tax, and the requirement by the non-resident, to file a Canadian income tax return for the taxation year in which the disposition occurred and report the taxable capital gain (loss) realized thereon.
Paragraph 9 of Article XIII of the Canada-U.S. Income Tax Convention (1980) may apply to provide some relief from Canadian tax in respect of a gain realized on the disposition of capital property in Canada by a U.S. resident. The effect of this provision is to reduce the amount of the capital gain liable to tax in Canada by the proportion of the gain attributable to the period ending on December 31, 1984. In effect, the gain would be calculated as the amount by which the proceeds of disposition, or deemed proceeds of disposition in the case of a non-arm's 'length gift, exceed the fair market value of the property on December 31, 1984. Should this provision apply, it should be so stated when filing the Canadian tax return. Any excess tax previously paid in respect of the disposition would then be refunded to the taxpayer.
The above comments are intended to provide general guidelines in respect of the disposition of Canadian real estate by a U.S. resident. As such these comments do not constitute an advance income tax ruling and are, therefore, not binding on the Department.
We trust that these comments will be helpful to you.
Yours truly
ORIGINAL SIGNED BY ORIGINAL SIGNÉ pAr ROBERT M. JOYCE
for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch