Canadian Property (Section-116)
It is a common misconception that Section-116 applies only to real estate, which is not the case; Section-116 applies to gain from disposal of any ‘taxable Canadian property’ (TCP) which includes but is not limited to:
1. Any real or immovable property (land) situated in Canada; or property used, held, or is part of the capital property of business (in this case non-resident business) carried on in Canada,
2. An interest in a partnership/trust, or a share of a corporation not publicly listed (excluding stocks/shares which are part of mutual funds); if, at any time in the last 5 years, more than 50% of the FMV of the interest, was derived directly or indirectly from one or any combination of the following:
- Real or immovable property situated in Canada;
- Canadian resource properties;
- Timber resource properties, and;
- Options in respect of, or interests in, or for civil law, rights in a property described in a, b, or c, whether or not the property exists.
3. Share/stock of a publicly-listed corporation, if 25% or more of the issued shares are owned by, or belong to the non-resident taxpayer; and/or persons with whom the non-resident taxpayer does not deal with at arm’s length and more than 50% of the fair market value of the share was derived directly/indirectly from points a. to d. mentioned above.
Additionally, it is possible that the TCP may not be subject to ITA Section-116, such as: if the seller is resident of a country with which Canada has an existing tax-treaty covering Section-116 ruling, or if the property is inventory of a business carried on in Canada (other than real or immovable property situated in Canada, a Canadian resource property or a timber resource property); shares of capital stock of a corporation that are listed on a recognized stock exchange, and etc.
It is highly recommended that any non-resident owner of Canadian property should consult a tax professional before disposing off their property, irrespective of whether it is a TCP or not.
Penalties in case of Non-Compliance
If the non-resident individual fails to apply for a ‘Compliance Certificate’ within 10 days of finalizing the sale, he/she could be liable to the either a penalty of $100 or $25 multiplied by the difference between the 10th day and the day the form requesting for the compliance/clearance certificate was applied for (whichever is greater) to a maximum of $2,500.
AG Tax LLP Can Help
If you have any tax-related queries or need assistance with tax planning or filing please contact AG Tax. Our tax professionals are highly-experienced with U.S. and Canadian tax laws and can provide you the right guidance to handle your tax situation.
Aylett Grant Tax LLP is a full service accounting firm with a dedicated team of experts, who are highly-qualified and experienced in handling situations related to U.S., Canadian, and other international tax laws.
We can assist with:
- Canadian Personal and Corporate tax returns
- Cross Border Taxation and Business Planning
- U.S. Personal and Corporate Taxation
- Disclosure of Foreign Assets and other information filings
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To obtain a quote or to arrange for a consultation to discuss your tax related queries, please contact us at:
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