CRA distinguishes its 1995 treaty position as no longer applicable

In 2011-0392171R3 (released last week) the CRA examined its previous position for share options in a company that owns Canadian real property.  Under Article XIII of the Canada-US tax treaty, gains realized by US residents on Canadian real property, or on “shares” of a Canadian company that owns Canadian real property (Canco), are taxable in Canada.  The question was whether an “option” in respect of a Canco share would be itself be considered a “share” for purposes of the treaty.  The CRA said no, it would not.  The CRA distinguished its 1995 position to the contrary (2011-0392171R3) on the basis that a “share” is no longer deemed to include an “option” (with the repeal of former s. 115(3)).  As a result, although the option would be “taxable Canadian property” (s. 248(1)), any gain realized on the option would not be subject to tax under Article XIII of the treaty.