Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: Whether the term “share” as described in subparagraph 3(b)(ii) of Article XIII(3) of the Canada-U.S. Tax Convention (1980) includes an option in respect thereof.
Position: No
Reasons: Under the Treaty, real property situated in Canada generally includes a share of the capital stock of a company resident in Canada. However, “a share” is defined under the Treaty to have the same meaning which it has under the Income Tax Act, which does not include an option in a share.
XXXXXXXXXX
2011-041652
June 22, 2012
Dear XXXXXXXXXX:
Re: An Option in a Share
This is in response to your written enquiry regarding whether the term “share” as described in subparagraph 3(b)(ii) of Article XIII of the Canada-United States Tax Convention (1980) (the “Treaty”) includes an option in respect thereof.
You have noted that the conclusion reached on whether a “share” included an option for purposes of Article XIII in Canada Revenue Agency’s (CRA) Document No. 9426405 was based on paragraph 2 of Article III of the Treaty, former paragraph 115(1)(b) and repealed subsection 115(3) of the Income Tax Act (“Act”). With the repeal of these sections taking effect October 2, 1996 this document no longer reflects the position of the CRA.
Under the current Act there is no longer a provision that is equivalent to former subsection 115(3). The former provision deemed a share to include an option in respect of the share. By virtue of paragraph 2 of Article III we were able to reach the conclusion that a share for the purpose of subparagraph 3(b)(ii) of the Treaty also included an option therein. With the consolidation of the definition of taxable Canadian property (“TCP”) under subsection 248(1) of the Act, an option in a share is no longer defined or deemed to be a share for purposes of the Act. An option in a share where, among other things, more than 50% of the share’s value is derived from real property is included in the definition of TCP but is treated as a separate property. Although the option may be TCP it is not considered a “share”.
In conclusion, the reference in subparagraph 3(b)(ii) of Article XIII of the Treaty to “a share” does not include, by reason of paragraph 2 of Article III of the Treaty, an option in respect of the share even where the share, itself, is TCP under subsection 248(1) of the Act .
We trust this information is helpful.
Yours truly,
Lita Krantz
Assistant Director
International Division/ Division des opérations internationales
International Section III
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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