18 January 1993 External T.I. 5-921718

A loan by a non-resident individual to a Canadian partnership secured by a second mortgage on a building owned by the partnership, that provided for the payment on maturity of 10% of the appreciation in value of the building in addition to interest at a rate of 11% per annum, would constitute an interest in real property situated in Canada for purposes of s. 115(1)(b) under the broad definition in s. 115(3). "In our view, the non-resident's interest in the building, which includes a right to participate in the appreciation of the building, is not 'an interest as security only'" as contemplated in s. 248(4).

A three-year second mortgage loan, bearing interest at 11% per annum, made by a non-resident to a Canadian partnership provided that on maturity the lender would receive, in addition to principal and interest, 10% of the increase in the value of the building, if any, over the three-year term as determined by independent appraisal. In concluding that any disposition of the loan during the term of the loan would be a disposition of "real property situated in Canada" for purposes of s. 115(1)(b), the Department indicated that "the non-resident's interest in the building, which includes a right to participate in the appreciation of the building, is not 'an interest as security only' for purposes of s. 248(4), so that the mortgage loan was an interest in real property.