I act for a Canadian corporation that is buying all the shares of another Canadian corporation, that is a metal fabricator, from its US-based parent corporation (a C Corporation in the US.). I told them that unless there is a tax clearance from the CRA, they have to hold-back 25% of the purchase price, on account of Canadian taxes. The vendor’s lawyer is saying that, because the corporation being bought has never owned any real estate in Canada, we don’t have to withhold-is that right?
Tax Professional Answers
The tax clearance and notification requirements in connection with property acquired from non-residents (section 116 of the ITA) are only applicable if the property acquired is “taxable Canadian property” (“TCP”).
Prior to changes that were made to the TCP definition in March of 2010, shares of any non-public corporation resident in Canada were automatically TCP.
However, as a result of the changes, shares will only be TCP at any particular time, if, at some time within 60 months prior to that time, more than 50% of the value of that share was derived, directly or indirectly, from Canadian real estate (or property related to real estate, such as timber, oil, or mining resource properties).
Given that, it does not seem like the shares are TCP, so there is no tax clearance required.
Meet Leading Tax Advisors
Federal Tax Credits & Incentives Practice Leader
New York, NY
Managing Tax Consultant
Des Plaines, IL
Rancho Santa Fe, CA
President/ Tax And Financial Advisor
Managing Tax Lawyer
Tax Advisor/Fiduciary Coach
San Diego, CA
Senior Tax Principal
Daytona Beach, FL
Managing Tax Advisor/CEO