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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
Whether a new written flow-through share agreement is required upon exercise of a flow-through share warrant
Position:
In the flow-through share agreement examined, a new written agreement was not required
Reasons:
The existing written agreement applied to the flow-through share warrants for purposes of the flow-through share provisions in ss 66(12.6) and the definition of flow-through share in ss 66(15)
December 14, 1995
Tax Incentive Audit Section HEADQUARTERS
Mara Praulins, A/Chief Resource Industries Section
Denise Y. Dalphy
Attention: Carole Lalonde 957-9231
953126
XXXXXXXXXX
This is in reply to your facsimile transmission of November 29, 1995, and our (Lalonde/Chan) telephone conversation concerning shares to be issued by the above-captioned corporation on the exercise of certain warrants.
As you requested, we have reviewed the relevant provisions of the XXXXXXXXXX (the "Agreement"). We would consider a new flow-through share agreement to have been entered into on the date a FT Share Warrant is exercised and another subscription agreement would not be required in order to satisfy the provision requiring an "agreement in writing" in the preamble of the definition "flow-through share" in subsection 66(15) of the Income Tax Act.
We also discussed a "worst case scenario", where a FT Warrant Share may be issued on the last day of the 24 month period following the Closing Date, as the "Agreement" permits (XXXXXXXXXX). In this case, the share could be a flow-through share for only one day, because the Subscription Agreement requires the Company to incur (XXXXXXXXXX) and renounce (XXXXXXXXXX) all resource expenses on or before that same date. It is certainly within the discretion of the Company to so limit itself if it wishes, however it need not do so.
Since we consider that a new agreement would be effective from the date when the FT Warrant is exercised, the 24 month period referred to in paragraphs (a) and (b) of the definition "flow-through share" would also begin on that date. This would allow the corporation, if it so desired, a full 24 months from the date when the FT Warrant is exercised in which to incur and renounce the relevant resource expenses. This, however, would only be possible if the Subscription Agreement were amended to allow for this.
We trust this opinion will be of assistance.
A/Chief
Resource Industries Section
Manufacturing Industries, Partnerships
and Trusts Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch
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