On February 10, 2016, Canada Revenue Agency (“CRA”) released technical interpretation 2013-0496461E5, which addresses whether non-resident individuals are required to file Canadian tax returns for years in which they elect under subsection 118.1(6) of the Income Tax Act (“ITA”) to make donations of taxable Canadian property (“TCP”), particularly donations of undeveloped land, to qualified donees. The technical interpretation states that, in such a situation, the ITA would generally require the non-resident to file a tax return.
Pursuant to subsections 116(1) and 116(3) of the ITA, non-residents that dispose of TCP are required to notify CRA and submit prescribed information to CRA within 10 days of the said disposition by way of Form T2062 Request by a Non-Resident of Canada for a Certificate of Compliance Related to the Disposition of Taxable Canadian Property. There are though, exceptions to this rule, such as if the property is described in subsection 116(5.2) or if it is otherwise defined as “excluded property” in subsection 116(6). In this particular case though, undeveloped land is addressed in paragraph 248(1)(a) of the definition of “taxable Canadian property” in the ITA and, therefore, does not fall within these exceptions and is TCP.
Additionally, if a non-resident wishes to make a designation under subsection 118.1(6) of the ITA with respect to such a disposition, the non-resident must also file a statement of intent to make the said designation as well as a letter from the charity or prescribed donee to confirm that the property is to be donated. Such a designation can only be made by attaching the supporting documentation to the non-resident’s income tax return. Where this designation is not properly filed with CRA, tax will be assessed by CRA in relation to the disposition of the property in question.
Information Circular IC72-17R6, Procedures concerning the disposition of taxable Canadian property by non-residents of Canada – Section 116 states that non-resident vendors may not have to file a Canadian tax return under certain circumstances. One of these is when a non-resident has no Part I tax payable for the taxation year. Although an election made under section 118.1(6) of the ITA may result in a non-resident having no Part I tax payable, it is important to note that such a designation may only be made by including the above-referenced Form T2062 and statement of intent as attachments to the non-resident individual’s income tax return for the taxation year in which the donation was made. Therefore, the filing of the underlying tax return by the non-resident is a necessary part of the process.