20 June 1997 External T.I. 9708985 - ART XIII(9)-DISPOSITION BY TRUST BENEFICIARY

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:

Is a U.S. beneficiary of a Canadian trust who sells real property rolled to him from the trust entitled to the benefit of the transitional rules in paragraph 9 of Article XIII of the Canada-U.S. Convention?

Position:

Yes.

Reasons:

Transfer under subsection 107(2) is a non-recognition transaction for Canadian tax purposes.

									970898
XXXXXXXXXX							J. Stalker

June 20, 1997

Dear XXXXXXXXXX:

We are writing in response to your letter dated March 25, 1997 and our subsequent telephone discussions (XXXXXXXXXX/Stalker) in respect of paragraph 9 of Article XIII of the Canada-U.S. Income Tax Convention (the "Convention").

You have asked if the benefits of paragraph 9 of Article XIII of the Convention would be available to a U.S. resident who disposes of Canadian real property where the property was originally owned by a Canadian resident trust which distributes the property to the beneficiaries. The Canadian trust owned the property since 1962.

Since the property is taxable Canadian property, subsection 107(5) of the Income Tax Act (Canada) (the "Act") is not applicable and the beneficiary would be deemed to receive the property at the cost amount of the property to the trust pursuant to subsection 107(2). It is our view that, as the transfer under subsection 107(2) of the Act is a non-recognition transaction for Canadian tax purposes, the U.S. resident would be entitled to the benefit of the transitional rules in paragraph 9 of Article XIII of the Convention on the disposition of the real property.

We trust our comments are helpful.

Yours truly,

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