4 March 1997 External T.I. 9705175 - grandfathering, joint exploration corporation

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 JEC grandfatheing rules apply where
1)amount of consideration not specified or
2)if open-ended agreement extended

Position:

no, no

Reasons:

1)payment is not made under agreement in writing unless payment must be made
2) extention of agreement would create new agreement for the additional period

970517
XXXXXXXXXX Denise Dalphy
(613) 957-9231
Attention: XXXXXXXXXX

March 4, 1997

Dear Sirs:

Re: Joint Exploration Corporation Transitional Rules

This is in reply to your letter of February 14, 1997, wherein you requested our opinion on the proposed transitional rules (the "transitional rules") for "joint exploration corporations" which are described in subsection 13(36) of the Notice of Ways and Means Motion tabled on December 6, 1996.

In our view, the "agreement in writing" referred to in the transitional rules refers to an agreement in respect of which there has been a meeting of minds on, inter alia, consideration. In our view, a payment would not be made "under an agreement in writing" for the purpose of the transitional rules unless the terms of the agreement specifically and definitely required the payment to be made. Therefore, a payment made in connection with an open-ended agreement which does not specify the minimum or maximum amounts to be paid would not fall within the ambit of the transitional rule. It is our further opinion that an agreement to extend a contract for a period of one year would result in the creation of a new agreement for that additional one year period for the purpose of applying the proposed transitional rules.

The foregoing comments represent our general views with respect to the subject matter. As indicated in paragraph 22 of Information Circular 70-6R3, the above comments do not constitute an income tax ruling and accordingly are not binding on the Department. Our practise is to make this specific disclaimer in all instances in which we provide an opinion.

Yours truly,

for Director
Resources, Partnerships and Trusts Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch