Are shares or trust interests in a resident corporation or trust considered to derive their value principally from real property situated in Canada for purposes of Art. XIII(3)(b) of the Canada–U.S. Treaty where at the time of the disposition the corporation or trust only held cash proceeds from the disposition of Canadian real property?
As a preliminary observation, CRA stated:
In the context of a tax treaty between Canada and another jurisdiction, as well as in the context of the definition of the term “taxable Canadian property” in subsection 248(1) of the Act, the use of the phrase “derived principally from real property” (or a similar expression) allows one to look through a particular property (which is, for example, a share of a corporation or an interest in a trust) to the real property situated in Canada and held, directly or indirectly, by such corporation or trust.
and then responded:
[A]s long as the corporation or the trust do not hold real property situated in Canada (either directly or indirectly) at the relevant time, the value of the shares of the corporation or the interest in the trust cannot be said to be derived from such real property for purposes of Article XIII….
[I]f the real property was disposed of by the corporation or the trust at any time during the 60 months preceding the disposition of the shares of the corporation or the interest in the trust, such shares or the interest, respectively, would still be considered taxable Canadian property….