Respecting an inquiry as to the treatment of CEE renounced to a non-resident shareholder, the Rulings Directorate stated:
For the purpose of paragraph 3(a) a flow-through share is a source of property income. However, when the share is held in conjunction with the business carried on by the owner, it would be a source of income from that business. In computing income for the purpose of paragraph 3(a) of the Act, a Canadian resident shareholder may deduct renounced Canadian exploration expenses to the extent permitted by subdivision E of the Act and in so doing may create a non-capital loss.
Where the flow-through share is owned by a non-resident of Canada and is not held in conjunction with a business carried on in Canada, the share would normally be a "source" for the purpose of determining the non-resident's income from property. Subsection 2(3) and section 115... require a non-resident of Canada to determine Part I tax on income specifically identified in section 115(1) of the Act....As a result, Canadian exploration expense renounced to the non-resident shareholder may only be claimed under the authority of paragraph 3(c) of Part I of the Act to the extent there is income for Canadian tax purposes as described in section 115.
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