12 September 1989 Income Tax Severed Letter AC8423 - Taxable Canadian Property of a Non-resident

5-8423
                19(1)                    K.B. Harding
                                         613-957-2129

September 12, 1989

This is in reply to your letter of July 10, 1989 concerning the tax treatment of certain transactions.

We will reply to your questions in the order presented in your letter.

1.        A non-resident of Canada is taxable in Canada on
          capital gains arising from the disposition of "taxable
          Canadian property" or an interest in such property.  In
          the case of shares, taxable Canadian property of
          non-resident would include;

          a)   shares of a private corporation, or

          b)   shares of a public corporation if at any time,
               duringa 5 year period immediately preceding the
               disposition of such shares, the non-resident did
               not deal at arm's length or the non-resident and
               persons with whom he did not deal at arm's length
               or the non-resident and persons with whom he did
               not deal at arm's length owned 25% or more of the
               issued shares of any class of capital stock of the
               corporation.

          Accordingly, since the        24(1)      shares
          constitute shares of a public company and you do not
          meet the conditions of (b) above, the capital gains
          arising on the disposition of such shares would not be
          taxable in your hands.

2         a)   Bonds or debentures of a non-resident of Canada do
               not constitute taxable Canadian property and
               generally any capital gains arising on the
               disposition of such property would not be subject
               to tax in Canada.  However, where a portion or all
               of such a capital gain can be attributed to
               accrued interest on the bonds or debentures or the
               bonds or debentures are disposed of to a resident
               of Canada, a portion or all of such capital gain
               as provided in subsections 214(6) and (7) of
               Income Tax Act may be deemed to be interest and
               subject to a 25 per cent withholding tax in
               Canada.

          b)   Where a non-resident of Canada disposes of
               treasury bill issued after April 15, 1966 the
               difference between the discounted purchase price
               and the face value thereof is considered as
               interest and is exempt from withholding tax by
               virtue of subclause 212(1)(b)(ii)(C)(I) of the
               Income Tax Act.  Any capital gain that arises
               where a treasury bill is sold in excess of the
               face value will be exempt from tax in Canada, as a
               treasury bill does not constitute "taxable
               Canadian property".

3.        Interest paid on a bank account in Canada to a resident
          of South Africa is subject to 25 per cent withholding
          tax in Canada.

We trust these comments are suitable for you purposes.

Your truly,

for Director Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch