12 February 1986 Income Tax Severed Letter 5-0323 - [Whether a disposition of property would arise under the Income Tax Act]

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.

A.A. Cameron (613) 995-1787

XXXX

February 12, 1986

Dear Sirs

Re: Whether a disposition of property would arise under the Income Tax Act (the "Act")

We are writing in response to your letter of December 23, 1985 in which you requested our opinion as to whether or not a disposition could occur for purposes of the Act in a situation as described therein. The relevant facts may be summarized as follows:

A Canadian corporation ("Canco") has obtained an exclusive right, under an agreement with the government of a foreign country, to explore for certain minerals in a specific geographical area of that country for a stated period of time. Under the agreement if after preliminary exploration Canco decides it is worthwhile to exploit the property it must incorporate a subsidiary company ("Subco") in the foreign jurisdiction who will be granted, by the foreign government, the licences necessary to exploit the property. Canco would make available to Subco its exploration findings to assist the latter in exploitation of the property. The agreement also provides that Canco may assign its rights thereunder (including its right to incorporate a foreign company to acquire the necessary licences) to a third party subject to the approval of the foreign government, which approval cannot be unreasonably withheld.

Whether or not a disposition occurs for the purposes of the Act as a result of Canco permitting Subco to apply for the necessary licences or as a result of Canco making its exploration findings available to Subco is a question of fact which can only be determined with certainty after a review of all the relevant facts. This would include a detailed review of the agreement between Canco and the foreign government and any agreements between Canco and Subco. However, based upon the information provided, it would appear that a disposition of property, as defined for the purposes of the Act, may occur in this situation.

The question as to which provisions of the Act would have application in the above-mentioned situation also rests upon consideration of all the facts of the particular situation and therefore cannot be determined based upon the information given.

We hope these comments are of assistance to you.

Yours truly,

for Director Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch