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| CAPITAL
GAINS |
RULES UNDER THE INCOME
TAX ACT
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| General Rules |
In general, non-residents of Canada are subject to Canadian
tax on capital gains from the disposition of "taxable Canadian
property". As is the case with Canadian residents only 50%
of capital gains are taxable ("taxable capital gains") and
this amount (net of "allowable capital losses") is included
in income and taxable under Part I of the Act.
This treatment can apply to deemed capital gains, as well
as actual realized capital gains, such as those resulting
from a gift of the property or the death of the owner of
the property.
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| Taxable Canadian
Property ("TCP") |
| Under new rules that will generally apply after
March 4, 2010, TCP will generally be limited to interests in
Canadian real estate, resource properties, or timber limits.
Shares in corporation can also be TCP if at any time in the
prior 60 months, more than 50% of the value of the
corporation's assets is attributable to such property. Similar
rules apply to interests in partnerships or trusts. No longer
will shares of a private corporation resident in Canada
automatically be TCP!
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Withholding And
Clearance Requirements
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In most cases, a person who acquires TCP from
a non-resident is obliged to remit tax (of either 25% or 50%)
of the purchase price unless a tax clearance has been obtained
by that non-resident from the Canada Customs and Revenue Agency.
In order to obtain such tax clearance, the non-residence
will generally have to pay, or post security for, 25% of any
capital gain realized, as well as an estimate of the tax applicable
to any recaptured capital cost allowance.
If the amount of tax paid to get the clearance (or tax remitted
by the purchaser) exceeds the actual tax liability, a refund
for the excess may be obtained by filing a Canadian tax return.
Under new rules that took effect starting in 2009, a tax
clearance will not be required in certain cases where the
property is "treaty protected property".
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| RULES UNDER CANADA'S
TAX TREATIES |
The usual pattern under Canada's tax treaties
is that Canada may tax non-residents on gains from the disposition
of direct and indirect interests in real property situated
in Canada (including interests in corporations, partnerships
or trusts that derive most of their value from Canadian real
property).
In addition, Canada is normally permitted to tax gains on
other property forming part of a permanent establishment or
fixed base of a business carried on in Canada.
Furthermore, Canada is normally allowed to tax capital gains
on all other types of property owned by former Canadian residents
for a specified time period after they cease being Canadian
residents (this is discussed under "Emigration From Canada").
Beyond those types of situations, residents of the vast
majority of Canada's treaty partners are generally shielded
from Canadian tax on capital gains.
However, some significant departures from these general
rules are outlined below.
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| COUNTRY |
EXCEPTION |
| Japan |
No protection from Canadian taxation-gains from any
form of TCP may be taxed |
| Netherlands |
Capital gains accrued before 1988 on direct or indirect
interests in Canadian real property owned on May 27, 1986
generally exempt from Canadian tax if not held as part
of permanent establishment of business carried on in Canada. |
| United Kingdom |
Capital gains applicable to direct and indirect interests
in certain rights, licenses, etc. in relations to petroleum,
natural gas, etc. |
| United States |
Capital gains accrued before 1985 on direct or indirect
interests in Canadian real property owned on September
26, 1980 generally exempt from Canadian tax if not held
as part of permanent establishment of business carried
on in Canada. |
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