16 November 2010 External T.I. 2010-0381541E5 - Red Mile Resources No. 3 Limited Partnership

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Whether Audit's proposal to reassess investors in a limited partnership is contrary to positions taken by the Income Tax Rulings Directorate in ATR 2003-001656.

Position: No

Reasons: ATR 2003-001656 was issued in respect of a proposed investment in a limited partnership that would invest in an oil and gas farm-in arrangement, while the proposed reassessments relate to an investment in a limited partnership that would invest in a royalty in the form of net smelter return. Although the financing structure may be similar, the risks involved in the two investments are quite different.

XXXXXXXXXX
									2010-038154
									Ted Harris

November 16, 2010

Dear XXXXXXXXXX :

Re: XXXXXXXXXX (the “Partnership”)

I am writing in response to your letter of September 17, 2010 regarding the proposed assessment of partners of the Partnership by the XXXXXXXXXX Tax Services Audit Division. You believe that these proposed reassessments are contrary to positions taken by the Income Tax Rulings Directorate in an advance income tax ruling issued on XXXXXXXXXX , 2003 [our file 2003-001656 (the “Ruling”)], a copy of which was enclosed with your letter.

You believe that the structure of the transactions undertaken by the Partnership are similar to the proposed transactions described in the Ruling, except that the Ruling related to an oil and gas farm-in arrangement, while the transactions undertaken by the Partnership involved the acquisition of a royalty interest in a mining property. In this context, you also referred to my letter of November 23, 2004, a copy of which was also enclosed with your letter, which acknowledged that because the possible investment in partnerships that carry out mineral exploration and development in Canada, that operate mines or mineral resource development properties in Canada or that acquire royalties in the form of net smelter returns was described in the Ruling, the Ruling would not be considered invalid.

In our opinion, an investment in an oil and gas farm-in arrangement as described in the Ruling is significantly different from an investment in a royalty in the form of net smelter return. Although the Ruling indicated that investments may also be made in other resource properties, the particular rulings provided were in respect of the proposed investment in the oil and gas farm-in arrangement described in detail in the Ruling.

I appreciate you bringing your concerns to my attention; however, as we did not rule on a proposed investment in a partnership that would invest in a mineral royalty, the Income Tax Rulings Directorate would be comfortable with the XXXXXXXXXX TSO completing its review of the transactions carried out by the Partnership and pursuing any corrective measures it considers necessary.

Yours truly,

Wayne Adams
Director General
Income Tax Rulings Directorate
Policy and Planning Branch