13.1 Introduction to Article XIII – Gains
Article XIII generally deals with the taxation of capital gains realized by residents of Canada or the U.S. that may be also taxed in the other State.
The general rule dealing with the allocation of jurisdiction to impose tax on the gains from the disposition of property is set forth in Article XIII(4), which provides that gains from the disposition of property by a resident of a residence State should be subject to tax only in the resident State, unless such the gains from disposition are subject to tax in the source State as provided in Articles XIII(1), (2), and (5).
Article XIII (1) authorizes the source State to tax gains derived by a resident of a residence State from the disposition of real property situated in the source State.
Article XIII (2) permits taxation by a source State of the gains derived by a resident of the residence State from the disposition of personal property forming part of the business property of a permanent establishment maintained by a resident of residence State in the source State, currently or within 12-month period preceding the date or the disposition.
Article XIII (6) to (9) accommodate certain discrepancies between Canadian and U.S. tax laws that otherwise could result in a double taxation of gains realized by the residents of these States.
Article XIII (9) provides a transitional rule relating to the 1942 Treaty and Treaty at present.
References:
Advisor’s Guide to Canada – U.S. Tax Treaty
By: Vitaly Timokhov, Raymond Montero, David Kerzner
Published by: Thomson Carswell
