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 the opinions expressed in a previous letter regarding the tax consequences of flow-through shares issued in a particular situation are still valid.
Position: Generally yes, we are not aware of anything that would invalidate that letter. But we would need to look at some additional factors, including, such as the determination of the corporation that incurred the Canadian exploration expense, whether the transaction represented a "farm out" transaction and the potential application of the benefit provisions.
Reasons: Requirements of the law.
XXXXXXXXXX 2007-025447
Fiona Harrison
December 7, 2007
Dear XXXXXXXXXX :
Re: Flow-through shares
This is in reply to your letter of September 12, 2007, wherein you requested our views in respect of a letter that was issued on February 16, 1996, (our reference 960160) (the "Previous Letter"), concerning the tax consequences of flow-through shares issued in a certain situation.
As noted in our Previous Letter, confirmation with respect to proposed transactions involving specific taxpayers should be the subject of an advance income tax ruling request. The comments provided in the Previous Letter were of a general nature and are not binding on the Canada Revenue Agency.
The final determination as to the appropriate classification for purposes of the Income Tax Act (the "Act") of expenditures incurred, or amounts received, by a taxpayer in a specific situation must be made with reference to all of the facts and circumstances relevant to that taxpayer's situation. Although we are not aware of any particular issue that would change our views expressed in our Previous Letter, we believe that the following additional issues would need to be considered. We would need to analyze the legal agreements governing the transactions to determine, inter alia, which corporation incurred the "Canadian exploration expense" ("CEE") as that phrase is defined under subsection 66.1(6) of the Act. Moreover, we would need to establish whether the transactions represented a "farm-out" transaction that meets the criteria set out in Interpretation Bulletin IT-125R4. Other determining factors would include the potential application of paragraph 69(1)(b), paragraph 66(12.1)(a), and other benefit provisions contained in the Act
If you wish to obtain an advance income tax ruling for particular taxpayers with respect to specific contemplated transactions, a written request for an advance income tax ruling should be submitted in accordance with Information Circular 70-6R5.
Yours truly,
for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Legislation Policy and Regulatory Affairs Branch
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