8 May 1995 External T.I. 9504015 - MEANING OF TAX CND PTY (SHARES HELD AS INVENTORY)

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.

		950401
XXXXXXXXXX		Jim Wilson
		613-957-2123

Attention: XXXXXXXXXX

May 8, 1995

Dear Sirs:

Re: Meaning of "Taxable Canadian Property"

We are writing in response to your letter of February 10, 1995 in which you requested our opinion on the meaning of the above-noted phrase. You have described a situation where a non-resident of Canada holds shares of a corporation resident in Canada (other than a public corporation) as inventory and not capital property. The non-resident does not carry on business in Canada and does not have a permanent establishment in Canada. Specifically, you wish to know if the shares constitute "taxable Canadian property" for purposes of section 116 of the Income Tax Act (the "Act").

It is a question of fact, subject to section 54.2 of the Act, whether shares are held as inventory or as capital property. It is also a question of fact, subject to section 253 of the Act, whether a non-resident would be considered to be carrying on business in Canada. Where the facts demonstrate that such shares are held by the non-resident as inventory, such shares will not constitute taxable Canadian property for purposes of section 116 of the Act. In this regard, there is no equivalent provision to subsection 116(5.2) of the Act¹ for shares that are not capital property.

The purchaser of the shares may be liable for tax under subsection 116(5) of the Act, subject to paragraphs 116(5)(a) and (b) therein, if it is subsequently determined by the Department that such shares are capital property. To avoid a potential liability, the purchaser should obtain from the Department a certificate issued in accordance with subsection 116(4) of the Act. Regardless that section 116 does not apply to shares held as inventory, the Department will generally issue such a certificate if it is satisfied that no Part I tax will arise on the disposition.

The foregoing comments represent our general views with respect to the subject matter of your letter. As indicated in paragraph 21 of Information Circular 70-6R2, this is not an advance income tax ruling and is therefore not binding on Revenue Canada, Customs, Excise and Taxation.

Yours truly,

for Director
Reorganizations and Foreign Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

ENDNOTES

^1. Subsection 116(5.2) of the Act deals with, inter alia, "property (other than capital property) that is real property situated in Canada".