On July 23, 2026, the Department of Finance introduced legislative proposals (the “Tax Proposals”) relating to the definition of “taxable Canadian property” (“TCP”) found in subsection 248(1) of the Income Tax Act (the “Tax Act”). If enacted as proposed, the Tax Proposals would:
- revise the rules for determining when units of publicly traded partnerships constitute TCP;
- expand the look-through rule in paragraph (d) of the definition of TCP to permit value to be traced through a broader range of intermediate entities; and
- restore the deeming rule for options and interests in property that previously applied in determining whether property constitutes TCP.
The Tax Proposals come into force on Royal Assent with no transitional or grandfathering provisions. Given the 60-month lookback period embedded in the TCP definition, the amendments may affect existing structures and historic ownership arrangements.
Current Rules Regarding TCP
The relevant rules are principally contained in paragraphs (d) and (e) of the definition of TCP in subsection 248(1) of the Tax Act.
Paragraph (d) generally provides that a share of a corporation (other than a mutual fund corporation) that is not listed on a designated stock exchange, an interest in a partnership or an interest in a trust (other than a unit of a mutual fund trust or an income interest in a trust resident in Canada) will constitute TCP if, at any particular time during the preceding 60-month period, more than 50% of its fair market value was derived, directly or indirectly (otherwise than through a corporation, partnership or trust the shares or interests in which were not themselves TCP at the particular time), from one or more of real or immovable property situated in Canada, Canadian resource properties, timber resource properties, or options in respect of or interests in those properties (collectively, the “Enumerated Properties”) (the “Look-Through Rule”).
Paragraph (e) applies to shares listed on a designated stock exchange, shares of mutual fund corporations, and units of mutual fund trusts. Such a share or unit will constitute TCP if, at any particular time during the preceding 60-month period, both (i) 25% or more of the relevant class of shares or units was owned by the taxpayer, persons with whom the taxpayer did not deal at arm’s length, or certain partnerships in which such persons held an interest (the “25% Ownership Test”), and (ii) the Look-Through Rule is met.
Publicly Traded Partnership Units
Paragraph (d) of the definition of TCP under subsection 248(1) of the Tax Act currently applies to partnership units listed on a designated stock exchange. Under the Tax Proposals, listed partnership units would instead fall within paragraph (e) and be subject to both the 25% Ownership Test and the Look-Through Rule, bringing their treatment in line with that of listed corporate shares and mutual fund interests for purposes of the TCP definition.
Unlisted partnership interests will continue to be tested under paragraph (d) and will remain subject only to the Look-Through Rule under that paragraph.
The Tax Proposals would therefore align the TCP treatment of publicly traded partnership units with that of listed corporate shares. The amendments may be particularly relevant to investment funds and other collective investment vehicles structured as partnerships.
Broadening of the Look-Through Rule
The Tax Proposals seek to broaden the range of entities through which value may be traced for purposes of the Look-Through Rule. Currently, where a share or interest indirectly derives value from the Enumerated Properties, paragraph (d) does not permit value to be traced through a corporation, partnership, or trust if the shares or interests in that entity are not themselves TCP at the particular time.
The Tax Proposals would amend the Look-Through Rule so that a share or interest can derive value indirectly from the Enumerated Properties through any corporation, trust or partnership, other than a corporation or partnership whose shares or units are listed on a designated stock exchange, a mutual fund corporation, or a mutual fund trust.
The following example illustrates this change:
- Assume that Holdco has shares with a fair market value of $200,000 and owns all the shares of Subco 1 and Subco 2.
- Subco 1 owns property with a total fair market value of $110,000, of which $60,000 is derived from Enumerated Properties.
- Subco 2 owns property with a total fair market value of $90,000, of which $42,000 is derived from Enumerated Properties.
Under the current rules, the Look-Through Rule would not allow value to be traced through Subco 2 because less than 50% of the fair market value of its shares is derived from the Enumerated Properties and the Subco 2 shares are therefore not themselves TCP. Accordingly, only the value of the Enumerated Properties held by Subco 1 would be considered in determining whether more than 50% of the fair market value of the Holdco shares is derived from the Enumerated Properties. The Holdco shares would thus not be considered TCP under the current rules, as only $60,000 of their $200,000 total fair market value is derived from the Enumerated Properties.
If the Tax Proposals proceed in their current form, the Holdco shares would be considered TCP, as the Enumerated Properties held by Subco 2 would be taken into account notwithstanding that the Subco 2 shares are not themselves TCP. Accordingly, $102,000 of the $200,000 total fair market value of the Holdco shares would be derived from the Enumerated Properties.
Options and Interests in TCP
The Tax Proposals would also introduce subsection 248(1.2) of the Tax Act. For purposes of the TCP definition, the proposed subsection would deem property described in paragraphs (a) to (e) of that definition to include an option in respect of, or an interest in, or, for civil law, a right in, the property, whether or not the underlying property exists.
Proposed subsection 248(1.2) would effectively reinstate the deeming rule that previously applied when the TCP definition and its related rules were contained in former subsections 115(1) and (3) of the Tax Act. The proposed rule would be broader than existing subparagraph (d)(iv) and paragraph (f) of the TCP definition, which would be repealed, because it would apply throughout paragraphs (a) to (e) of the definition and would permit the option or interest itself to constitute TCP.
The proposed rule may also affect the application of the 25% Ownership Test. For example, a taxpayer that owns 24% of the shares of a corporation and holds an option to acquire an additional 1% would satisfy the 25% Ownership Test as a result of proposed subsection 248(1.2). If the Look-Through Rule was also satisfied, both the taxpayer’s shares and the option would constitute TCP.
As a result of the Tax Proposals, options to acquire shares are once again factored into the 25% Ownership Test and can affect whether the shares are considered TCP.
Conclusion
The Tax Proposals could affect the TCP status of existing investments and structures, with particular implications for non-resident taxpayers holding direct or indirect interests in Canadian property. Given the 60-month lookback period, non-residents should consider the potential impact of the amendments on their existing holdings.
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