Canada: Canada clarifies tax treatment to non-resident partners on disposition of property held by a partnership

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Canada: Canada clarifies tax treatment to non-resident partners on disposition of property held by a partnership

maclagan.jpg

jamal.jpg

Bill Maclagan


Soraya Jamal

Non-residents are generally subject to Canadian tax on gains realised on dispositions of "taxable Canadian property" (TCP) unless treaty relief is available. Historically, TCP has included shares of a public corporation, shares of a mutual fund corporation and units of a mutual fund trust held by a non-resident where at any time during the 60-month period immediately preceding a disposition of any such property, two tests are satisfied: (i) the non-resident holder, persons with whom the non-resident holder did not deal at arm's-length, or the non-resident holder together with all such persons, owned 25% or more of the issued shares of any class or series of shares of the capital stock of the corporation or issued units of the trust, as the case may be; and (ii) more than 50% of the fair market value of the particular share or unit was derived directly or indirectly from one or any combination of 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, any such properties (whether or not such property exists).

In the context of a partnership that has non-resident partners, the Canada Revenue Agency (CRA) confirmed earlier this year that the TCP determination of property held by a partnership should be made at the partner level and not the partnership level. This was inconsistent with previous positions and the CRA stated that it believed that this result was unintended. On July 12 2013, the Canadian government released proposed amendments to the Income Tax Act to reverse this position, such that the TCP determination must occur at the partnership level. As a result of this proposed amendment, if a partnership disposes of property that would not be considered TCP if the non-resident partner owned the property directly, that partner's portion of the gain realised on the disposition may nonetheless be subject to Canadian tax if the property constitutes TCP to the partnership. This mismatch of property characterisation will occur where the partnership meets the 25% ownership test described above, but a non-resident partner would not.

A partnership with non-resident partners should be alert to the impact of the proposed legislative amendments and should take the necessary measures to avoid inadvertently triggering a Canadian tax liability for its non-resident partners.

Bill Maclagan (bill.maclagan@blakes.com) and Soraya Jamal (soraya.jamal@blakes.com)

Blake, Cassels & Graydon

Tel: +1 604 631 3300

Website: www.blakes.com

more across site & shared bottom lb ros

More from across our site

Veteran Elizabeth Arrendale will lead the new advisory practice, which will support clients with M&A tax structuring, post-deal integration, and more
MAP cases keep increasing, and cases closed aren’t keeping pace with the number started, the OECD’s Sriram Govind also told an ITR summit
Nobody likes paperwork or paying money, but the assertion that legal accreditation doesn’t offer value to firms and clients alike is false
Ryan hopes the buyout will help it expand into Asia and the Middle East; in other news, three German finance ministers have called for a suspension of pillar two
SKAT, which was represented by Pinsent Masons, had accused Sanjay Shah and other defendants of fraudulent dividend tax refund claims
TP managers must be able to explain technical issues in simple terms, ITR’s European Transfer Pricing Forum heard
Prudential had challenged HMRC over VAT group relief; in other news, Donald Trump unveiled timber and wood tariffs, and the European Commission published a ViDA implementation strategy
Australia’s CbCR rules have ‘widespread support’ and do not put American companies at a competitive disadvantage, the FACT Coalition said
Baker McKenzie advised two of the member firms involved, while several advisers provided transaction counsel to US-based Grant Thornton Advisors
Foreign remittance requirements put additional administrative burden on Indian law firms and strain their relationship with foreign associate firms, according to practitioners
Gift this article