CRA finds that the Canada-U.K. Treaty does not exempt shares deriving their value from Canadian oil and gas licences – even where the Canadian business is carried on “in” them
Para. 5(a) of the Canada-U.K. Treaty provides that shares may be taxed in Canada if they derive the greater part of their value from immovable property situated in Canada, or Canadian oil and gas licences. Para. 7 provides that for these purposes, immovable property does not include “any property (other than rental property) in which the business of the company was carried on.”
In an interpretation provided prior to the Alta Energy decision, CRA took the view that where a UK resident disposed of its shares of a Canadian subsidiary deriving most of their value from Canadian oil and gas licences, the gain was not exempted by para 7 having regard to the ‘or” which we bolded above.
Alta Energy appears to have effectively treated Canadian oil and gas licences as immovable property, so that the somewhat comparable exclusion under the Canada-Luxembourg Treaty for immovable property in which the company’s business was carried on was available. It is not at all clear that the specific dealing by the Canada-U.K. Treaty with oil and gas licences effectively deems them not to be immovable property. Accordingly, this interpretation is debatable.
Neal Armstrong. Summary of 7 June 2017 Canadian Petroleum Tax Society Roundtable, Q.3 under Treaties – Income Tax Conventions – Art. 13.