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.
Dear Sirs:
We are writing in reply to your letter of May 10, 1984 in which you request our views on the tax consequences of an agreement dealing with the exploration and development of a Canadian resource property.
The agreement in question is between your client XXX a resident and citizen of the United States, the owner of certain patented claims and XXX Canadian public corporation, that wishes to explore and develop the claim area.
The first part of the agreement provides for a right granted by the claim one to the corporation to enter upon the claim area for the purpose of determining the quantity and quality of its mineralization. The consideration for this right is a payment due on the date of granting the right. The right to enter upon to explore expires after one year. However, the corporation has an option to renew the right for three more years by making additional payments to the claim owner in each year. None of these yearly payments results in a change of ownership of the patented claims.
The second part of the agreement provides that the claim owner having received all the yearly payments is obliged to grant to the corporation a right to purchase the claims in consideration for a lump sum payment. On receiving this payment the claim owner is obliged to transfer the title of the property to the corporation subject to a retained interest in it in the form of a net smelter royalty.
You are concerned with the tax treatment of the periodic yearly payments for the right to explore preceding the granting of the option for the right to purchase the claims.
In our view these four periodic payments made to the non-resident claim owner for the right to enter upon and explore her property are in the nature of delay rental payments. It is the position of the Department that such payments are made for the use of the lessor's mineral title thus they are payments referred to in subparagraph 212(1)(d)(v) of the Act. The wording of subparagraph 212(1)(d)(v) of the Act makes it quite clear that if the amount of the payment was dependent upon the use of property it is subject to withholding.
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1984
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1984
Email this Content