Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
(1)Whether subsection 248(21) of the Act would apply to a split up of properties.
(2)Whether subsection 126(1) foreign tax credits would be available if taxpayer pays tax on capital gains in a foreign country.
Position:
(1)Question of fact.
(2)Yes, provided the tax paid is a non-business-income tax.
Reasons:
(1)Must be a partition of property that fits within subsections 248(20) or 248(21) of the Act.
(2)The foreign tax credit applies to non-business-income taxes paid to the
government of another country
2000-003859
XXXXXXXXXX A. Seidel
(613) 957-2058
September 25, 2000
Dear Sir:
Re: Partition of Property
This is in reply to your letter dated July 19, 2000 in which you requested our views as to whether subsection 248(21) of the Income Tax Act (the "Act") would apply to the partition of a group of properties that included both income producing properties and non-income producing properties.
The particular circumstances in your letter on which you have asked for our views appears to be a factual situation involving a specific taxpayer. As explained in Information Circular 70-6R3 ("IC-6R3"), it is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. Should your situation involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate district tax services office for their views. However, we are prepared to offer the following general comments which may be of assistance.
Subsection 248(21) of the Act applies where a co-owner receives, upon the partition of a property, title to a separate piece of property whose fair market value equals the fair market value of the co-owner's previous interest. In such a situation, paragraph 248(21)(a) of the Act deems the co-owner's new interest to be a continuation of the co-owner's undivided interest in the property immediately before the partition. In other words, the co-owner will have neither disposed of nor acquired any property and, as a result, there is no capital gain or loss upon the partition of the property.
In the situation where more than one property is acquired under one deed, such properties would be considered to be one property for purposes of the partitioning rules even if the properties were not adjacent.
Subsection 248(20) of the Act applies where the fair market value of the separate piece of property received by a co-owner upon partition is less or greater than the fair market value of the co-owner's previous interest. Where the value is less, the co-owner is deemed to have disposed of the part of the interest in the property attributable to the shortfall. An amount received by such a co-owner because of an unequal partition could result in a gain or loss from the disposition. Where the value is greater, the co-owner is deemed to have acquired an interest in the property attributable to such excess. Furthermore, where a partition occurs but the property is not divided proportionately with respect to fair market values, the exception provided by subsection 248(21) of the Act will not apply, and thus subsection 248(20) will apply, in those situations where the joint owners make up for the disproportionate interests by cash contributions or otherwise, such as a disproportionate allocation of debt.
For certain tax purposes, including the computation of income, it is the partnership, and not its partners, that owns the property used in the partnership. Since this results in the partners being unable to satisfy the joint ownership test in subsection 248(20) of the Act, the provision does not provide a mechanism for pro-rata distributions of partnership property. A partnership may be able to partition the property owned by the partnership in those situations where the partnership dissolves, each partner receives an undivided interest in each property formerly held by the partnership and the former partners then partition the properties previously held by the partnership.
ARTICLE VIII of the Canada-Ireland Treaty provides that income from immovable property may be taxed in the territory in which such property is situated and that the term "immovable property" shall be defined in accordance with the laws of the territory in which the property in question is situated. The word "income" in income tax treaties generally includes capital gains in respect of dispositions of capital property. Subject to certain restrictions for corporations and certain limitations in paragraph 126(1)(b) of the Act, subsection 126(1) of the Act provides a deduction from the tax otherwise payable by a taxpayer under Part I of the Act for any non-business-income tax paid by such a taxpayer for the year to a government of a country other than Canada. Therefore, if the disposition of a capital property results in a capital gain, a taxpayer would be entitled to a foreign tax credit in respect of the non-business-income taxes paid in respect of the disposition in the foreign country pursuant to subsection 126(1) of the Act.
Yours truly,
John Oulton
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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