One of the greatest complaints of non-resident investors into Canada is in respect of the requirement to obtain advance clearance certificates under section 116 of the Income Tax Act (Canada) each time a non-resident disposes of "taxable Canadian property" ("TCP"). The definition of TCP is quite broad and includes numerous types of property interests. The section 116 requirements exist even where Canada had ceded the right to tax certain types of property interests under the terms of a tax treaty.
The Budget provides a measure of relief. For no discernible reason, however, this relief will only be effective for dispositions of property commencing on January 1, 2009. From that date forward, where a person purchases property from a non-resident vendor and: (i) the purchaser is satisfied, after reasonable inquiry, that the vendor is resident in a jurisdiction that Canada has a tax treaty with; (ii) the disposition of the property by the vendor would not be subject to Canadian tax by reason of that treaty; and (iii) in the case of a vendor that is related to the purchaser, the purchaser provides notice to the CRA, containing certain prescribed information, within 30 days after the acquisition of the property, no section 116 certificate will be required of the vendor.
As an added bonus, the non-resident vendor will not be required to file a Canadian income tax return in respect of dispositions of TCP which satisfy the conditions described above. Currently a non-resident is required to file a Canadian income tax return if it has disposed of TCP even where there was no Canadian tax payable by reason of a particular treaty (an obligation likely more honoured in the breach than in the observance). In this regard, these changes should be viewed as some long-awaited "common-sense" relief.