ARCHIVED - Taxable Canadian property - Interests in and options on real property and shares

What the "Archived Content" notice means for interpretation bulletins

NO: IT-176R2

DATE: April 23, 1993

Taxable Canadian Property - Interests in and Options on Real Property and Shares

REFERENCE: Paragraph 115(1)(b) (also subsections 2(3) and 115(3) and paragraph 89(1)(g))


This bulletin cancels and replaces Interpretation Bulletin IT-176R dated September 2, 1975.


Non-residents are subject to taxation in Canada on taxable capital gains arising from the disposition of taxable Canadian property. Included in the list of "taxable Canadian property" are real property situated in Canada and shares of certain corporations that are resident in Canada. The law furthermore provides that taxable Canadian property includes an interest in or option on such property. This bulletin provides examples of interests in real property (options on real property are discussed in the current version of IT-403, Options on Real Estate) as well as examples of interests in or options on shares. Also discussed in this bulletin is the manner in which interests or options are taken into account when calculating the non-resident's percentage of ownership of shares of a public corporation.

Discussion and Interpretation

1. As discussed in the current version of IT-420, Non-Residents - Income Earned in Canada, a non-resident's taxable capital gains from the disposition of "taxable Canadian property" are taxable under section 115 of the Income Tax Act. Paragraph 115(1)(b) provides that property referred to in any of subparagraphs 115(1)(b)(i) to (ix), or an interest in property referred to in any of those subparagraphs, is taxable Canadian property. Furthermore, subsection 115(3) provides that for the purposes of section 115, a property described in subparagraphs 115(1)(b)(i) to (ix) is deemed to include an interest in (this applies after July 13, 1990) or an option on property described in those subparagraphs, whether or not the property exists. Included in the types of capital property that are listed in subparagraphs 115(1)(b)(i) to (ix) as "taxable Canadian property" are the following:

(a) real property situated in Canada - subparagraph 115(1)(b)(i);

(b) a share of the capital stock of a corporation resident in Canada that is not a public corporation (e.g. a private corporation) - subparagraph 115(1)(b)(iii); and

(c) a share of the capital stock of a public corporation (the definition of a "public corporation" in paragraph 89(1)(g) requires that it be resident in Canada) if, at any time during the five-year period immediately before the disposition of the share, not less than 25% of the issued shares of any class of the corporation's capital stock belonged to the non-resident person, to any person not dealing at arm's length with the non-resident person, or to any combination of the foregoing.

The last part of paragraph 115(1)(b) provides that a "taxable Canadian property" does not include a share of the capital stock of a non-resident-owned investment corporation, if, on the first day of the corporation's taxation year in which the disposition of its shares occurred, it did not own a Canadian resource property, a timber resource property, an income interest in a trust resident in Canada or any taxable Canadian property described in paragraph 115(1)(b).

Real Property

2. An interest in real property includes, for example, a part ownership, an inheritance right or a legal share in real property. For purposes of this discussion, an "inheritance right" means a remainder interest in real property for which present enjoyment has been postponed until the death of the life tenant. An interest in real property for purposes of section 115 does not include a mortgage, hypothec or mortgage bond.


3. An interest in or an option on a share referred to in 1(b) or (c) above would include, for example,

(a) a warrant or other right to acquire a share or shares; or

(b) a note or other debt instrument that is convertible into a share or shares.

Any of the above would be considered an option on a share where it contains an irrevocable offer in respect of a specified period of time to acquire a share.

4. For purposes of determining whether the 25% ownership requirement in connection with a share described in 1(c) above is met, an interest in (this applies only after July 13, 1990) or an option on a share should be taken into account. For example, if a non-resident owns 15% of the shares of a public corporation and has an interest in or option on another 15% of the same class of shares, the 25% requirement is met and any gain on the disposition of one or more of the corporation's shares, or on the disposition of the interest or option, will be considered to be a gain on the disposition of taxable Canadian property.

If you have any comments regarding the matters discussed in this bulletin, please send them to:

Director, Technical Publications Division
Legislative and Intergovernmental Affairs Branch
Revenue Canada Taxation
875 Heron Road
Ottawa, Ontario
K1A 0L8

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