Erdene tax disclosure points out potential trap on s. 86 reorganziations of junior mining companies

Erdene is spinning out a majority-owned public company subsidiary (APM) on a section 86 reorganziation.  The Canadian tax disclosure points out that where Erdene shareholders' only shares only are flow-through shares, the section 86 rules will produce a capital gain equal to the full fair market value of the APM shares that are distributed to them, given the nil adjusted cost base of their flow-through shares.

Neal Armstrong.  Summary of Erdene Circular under s. 86 reorganization spin-offs.