CRA indicates that styling a farm-out agreement as an option is bad form for GST/HST purposes (but potentially retrievable)
26 May 2014 - 12:44am
ETA s. 162 deems the transfer of mineral, oil or gas rights under a farm-out agreement not to be a supply for GST/HST purposes. What if the form of the agreement is an "option" to acquire such rights?
CRA stated that "strictly speaking" the grant of an option on a resource tenure is not a supply of the resource rights themselves, so that an option grant might be subject to GST/HST. However, in the example before it, CRA characterized an "option" agreement as in fact being analogous to a conditional sale agreement given that "as long as the Optionee meets its obligations, it will automatically acquire the Tenure" – so that there was no GST.
Neal Armstrong. Summaries of 29 August 2013 Interpretation 143128 under ETA s. 162(2) and s. 162(4).