Question
Subparagraph 115(1)(b)(iv) defines taxable Canadian property to include a share of the capital stock of a public corporation if at any time during the prescribed five-year period not less than 25% of the issued shares of any class belonged to the non-resident person, non-arm's length persons or a combination of the foregoing. Subsection 115(3) provides that, for purposes of section 115, a property described in subparagraphs 115(1)(b)(i) to (ix) is deemed to include an option in respect of such property (whether or not such property is in existence), and this is to be extended to include any interest therein by amendments in Bill C-18. Does the Department apply the provisions of subsection 115(3) for purposes of the share ownership requirements of subparagraph 115(1)(b)(iv) in order to determine whether a share of a public corporation is taxable Canadian property?
Department's Position
For the purpose of determining whether the 25% ownership test in subparagraph 115(1)(b)(iv) has been met in respect of a particular non-resident person, the Department treats options to acquire the property described in that subparagraph held by the non-resident person, or persons with whom he did not deal at arm's length, as having been exercised. Options held by persons dealing at arm's length with the particular non-resident person would not be considered to have been exercised. An interest in a share held by the particular non-resident person or persons with whom he did not deal at arm's length would also be included when applying the 25% test in subparagraph 115(1)(b)(iv).
Prepared by: T.B. KussDate: September 23, 1991