28 November 1989 Income Tax Severed Letter AC00292 - Canadian Exploration Expenses - Meaning of "Agreement in Writing"

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.

NOV 28 1989

Rulings Directorate                 Resource Industries
                                      Section
Carole Gouin-Toussaint              Frank Gillman
Director

                                    0-0292

Paragraph 66(15)(d.1) of the Income Tax Act "Agreement in Writing"

Background

We received a ruling request which proposed the following:

                     24(1)24(1)

The Law

Subsection 66(12.6) permits a corporation that has undertaken pursuant to an agreement in writing ("Agreement") to incur CEE, to issue flow-through shares (all in accordance with specific conditions), to renounce such CEE to a person who has given consideration for such flow-through shares, provided amongst other things, that the corporation incurs the CEE to be renounced, between the day the Agreement was entered into and the 24th month after the end of the month that included that day.

Furthermore, the definition of a flow-through share at paragraph 66(15)(d.1) requires in its preamble that the share be issued by a principal-business corporation to a person pursuant to an agreement in writing.

Consequently, when we interpret these two provisions of the Act in conjunction with each other, it is evident that the CEE which may be flowed-through to a shareholder must be incurred subsequent to entering into the Agreement.

Jurisprudence

The courts have considered and ruled on the issue as to when an agreement binds the parties.

In the Queen v. Imperial General Properties 85 DTC 5045 at 5049, MacGuigan J. quoted Judson J. of the Supreme Court of Canada who considered at what point in time an agreement was binding on the parties thereto when a true condition precedent existed. He said:

         "The obligations under the contract, on both sides,
         depend upon a future uncertain event, the happening of
         which depends entirely on the will of a third party -
         the Village council. This is a true condition precedent
         _ an external condition upon which the existence of the
         obligation depends. Until the event occurs there is no
         right to performance on either side..."

In this case, it was held that Imperial General Properties' (the vendor) entitlement to the monies received and to be received was contingent upon a condition precedent in the sales contract for which no right of waiver had been provided. The court found that the condition was a true condition precedent which was outside the control of the parties to the contract. Therefore, until the condition was fulfilled, the purchaser could not require specific performance of the contract, and the contract was not enforceable on the parties until that time.

Rulings Directorate

                     21(1)(b)

                     21(1)(b)

                     24(1)

Department of Justice

                     23

                   23

                   23

                   21(1)(b)

                   21(1)(b)

The Taxpayer

                    24(1)

Conclusion

                    21(1)(a)

Section Chief Resource Industries Section Bilingual Services and Resource Industries Division Rulings Directorate