In 2012-0443471E5, the Canada Revenue Agency (CRA) confirmed its position that so-called “tracking shares” are “taxable preferred shares”. The term “tracking shares” (as well as “alphabet shares” and “targeted shares”) has typically been used to describe a special class of shares of a company where the dividend rights are based on the profits of a particular division, activity, or subsidiary of the company. Such shares are intended to “track” the financial performance of the particular division, activity, or subsidiary in question – and thereby reflect its value. Tracking shares have been issued by public companies in the US, but are rare in Canada. In Canada, an important tax issue has been whether the tracking shares engage the special – and potentially punitive – tax regime applicable to “taxable preferred shares” (in Part IV.1 and Part VI.1). The CRA has consistently taken the position that when dividends are established by a legally-binding formula (even a formula that contains a variable, such as defined net profits), the amount of such dividends will be considered to be “fixed” in the sense of “set” or “established” by the formula. In the CRA’s view, this legal feature would be sufficient to cause the shares to be taxable preferred shares as defined in s. 248(1).