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24 January 2011 Internal T.I. 2010-0389251I7 F- Farm-out agreement and warrants-- summary under Options Summary Under Tax Topics- General Concepts- Fair Market Value- Options amount allocated out of consideration to “free” warrants based on the greater of their trading and in-the-money value A mining exploration corporation (the "Purchaser") agreed with another mining exploration corporation (the "Vendor") to acquire an interest in the Vendor's unproven resource properties (the "Properties") in consideration for incurring specified exploration expenses. As part of this agreement, the Vendor also agreed to issue, for no significant consideration, warrants to the Purchaser to acquire treasury common shares. After indicating that the amount of the Canadian exploration expense otherwise considered to be incurred by the Purchaser was to be reduced by the value of the warrants, the Directorate commented on their valuation as follows: In determining the portion of the total consideration for the warrants, we would consider the amount that would have been the benefit under subsection 15(1) if no consideration had been paid for the warrants. ...

18 December 2003 Internal T.I. 2003-0044007 F- OPTION D'ACHAT D'ACTIONS RACHETEES-- summary under Paragraph 7(1)(b) Summary Under Tax Topics- Income Tax Act- Section 7- Subsection 7(1)- Paragraph 7(1)(b) full option surrender consideration included under s. 7(1)(b) even though a portion thereof never paid The taxpayer surrendered his stock options to his arm’s-length employer for consideration that was payable partly up front and partly in instalments that were conditional on the employee’s continued employment for a specified period (a condition which he satisfied) and came due in years subsequent to that of the surrender. In finding that the taxpayer was required to include the full consideration paid or payable for the surrender in his income under s. 7(1)(b) notwithstanding that a portion of that consideration was not paid, the Directorate stated: The Act does not provide any qualification if the consideration for the disposition of the options is accompanied by a balance of sale, nor does it provide any relief in the event that the purchaser of the options fails to meet the purchaser’s obligations with respect to the payment of the option purchase price. ...

23 March 2011 Internal T.I. 2010-0389081I7 F- Disposition of a resource property-- summary under Element F Summary Under Tax Topics- Income Tax Act- Section 66.2- Subsection 66.2(5)- cumulative Canadian development expense- Element F proceeds from mineral claims sale included undiscounted deferred cash proceeds, but might exclude share consideration until issued; purchaser’s CEE obligation excluded The Vendor sold a percentage of its interest in unproven resource properties (the “Mining Properties”) in consideration for cash paid on signing and for stipulated cash sums and shares of the Purchaser (also a public corporation) which, in each case, were to be paid over a four-year period on the four anniversaries of the effective date of the agreement. ... After noting that the Mining Properties appeared to be property described in (f) of the Canadian resource property definition, that their disposition date was “the effective date and the date on which the conditions … were satisfied,” that the sale agreement did not specify a sale price, and that in F of the CCDE definition the “the expression ‘became receivable’ should have the same meaning as for the purposes of paragraph 12(1)(b),” the Directorate first turned to the cash component of the deferred consideration and stated that, having regard to jurisprudence indicating that where proceeds included note receivable, the value of such notes was not to be discounted: this is even more the case when it comes to monetary consideration. ... Turning to the deferred share issuance consideration portion of the sale consideration, the Directorate noted that over the four-year deferred payment period, the shares’ market price could “fluctuate greatly,” and stated that the TSO accordingly might: conclude that such portion of the proceeds of disposition for the Mining Properties by the Vendor is not determinable prior to the date of issuance of the shares by the Purchaser and that such portion of the proceeds of disposition would be recognized for tax purposes at the times of their issuance …. ...

As part of this agreement, the Vendor also agreed to issue, for no significant consideration, warrants to the Purchaser to acquire treasury common shares. The Directorate stated: Taking into account, among other things, the letter of intent and considering the final agreement as a whole, that there would be good arguments for concluding that a portion of the … expenses incurred by the Purchaser constituted consideration given by the taxpayer for a right in respect of a share of the Vendor... [T]hat consideration should be deducted by virtue of paragraph (j) … from Canadian exploration expenses otherwise computed. ...

24 January 2011 Internal T.I. 2010-0389251I7 F- Farm-out agreement and warrants-- summary under Subsection 15(1) Summary Under Tax Topics- Income Tax Act- Section 15- Subsection 15(1) valuation of “free” warrants issued as part of a simple farmout agreement determined based on what would be a s. 15(1) benefit A mining exploration corporation (the "Purchaser") agreed with another mining exploration corporation (the "Vendor") to acquire an interest in the Vendor's unproven resource properties (the "Properties") in consideration for incurring specified exploration expenses. As part of this agreement, the Vendor also agreed to issue, for no significant consideration, warrants to the Purchaser to acquire treasury common shares. ... In commenting on such value, the Directorate stated: In determining the portion of the total consideration for the warrants, we would consider the amount that would have been the benefit under subsection 15(1) if no consideration had been paid for the warrants. ...

Consideration to USCo includes a fixed monthly fee, a percentage of gross receipts, and a "Procurement License Fee" ("PLF"). ... Rejecting the taxpayer's contention that the PLF is consideration for a set of "procurement rights" distinct from the other franchise rights, CRA stated: [I]t can be argued the PLF is a substitute for the obligation to purchase products and equipment from USCo that would otherwise have been given as consideration for the grant of the Franchise Rights. ... Regardless of whether or not the PLF is separate consideration, it is not a rent, royalty or similar payment. ...

Subsequently, each brother disposed of all their shares of Holdco 1 or Holdco 2 to two new respective personal holding companies (Holdco 3 or Holdco 4) in consideration for Class A common shares (having a nominal ACB and PUC in light of a s. 85(1) election) and for Class E preferred shares (also with a nominal PUC, but with a high ACB pursuant to s. 85(1)(g).) ... Each brother then disposed of such common shares to a new respective holding company (Holdco 5 or Holdco 6) in consideration for Class B preferred shares of such new Holdco, and also in consideration for Class A commons shares. ... The Directorate stated: [P]aragraph 84.1(1)(a) would not apply to the disposition by each of Brother 1 and Brother 2 of the Class A shares … of Amalco 1 or Amalco 2 … to reduce the ACB in respect of the Class B preferred shares … of Holdco 5 and Holdco 6 received as consideration. … [F]or the purposes of paragraph 84.1(1)(a), the ACB to Brother 1 or Brother 2 … of the Class A shares of Amalco 1 or Amalco 2, as the case may be, would technically be deemed to be approximately $XXXXXXX. ...

-dollar purchase price, of which a specified portion was paid in Corporation C shares (the parent of Corporation B) as stated consideration for a specific number of Corporation A shares determined in accordance with the sale Agreement, and the balance was paid in cash. ... In agreeing with the taxpayers that the s. 7(1.5) rollover was available (given that “for the purposes of paragraph 7(1.5)(b), the employees received "no consideration …other than securities" as consideration for the Corporation A shares exchanged, the Directorate stated: [T]he Agreement … is sufficiently explicit to conclude that each employee can clearly identify which shares were exchanged for cash and which were exchanged for shares of Corporation C. ... [T[he reduction in paid-up capital cannot be considered to be an amount received as consideration for the disposition of the Corporation A shares even though that transaction was part of the series of transactions involving the sale of those shares. ...

23 March 2011 Internal T.I. 2010-0389081I7 F- Disposition of a resource property-- summary under Paragraph (a) Summary Under Tax Topics- Income Tax Act- Section 54- Proceeds of Disposition- Paragraph (a) proceeds included full (undiscounted) deferred cash proceeds, but might exclude share consideration (with volatile market price) until issued The Vendor sold a percentage interest in mineral claims (the “Mining Properties”) for consideration including deferred cash payments and shares to be issued by the public-company Purchaser, in each case, to be paid or issued over a four-year period. ... Turning to the deferred share issuance consideration, the Directorate noted that the shares’ market price could “fluctuate greatly,” and indicated that the TSO accordingly might: conclude that such portion of the proceeds of disposition for the Mining Properties by the Vendor is not determinable prior to the date of issuance of the shares by the Purchaser and that such portion of the proceeds of disposition would be recognized for tax purposes at the times of their issuance …. ...

23 March 2011 Internal T.I. 2010-0389081I7 F- Disposition of a resource property-- summary under Paragraph 12(1)(b) Summary Under Tax Topics- Income Tax Act- Section 12- Subsection 12(1)- Paragraph 12(1)(b) full undiscounted amount of future cash consideration to be included as an amount receivable The Vendor sold a percentage interest in mineral claims for consideration including deferred cash payments to be paid over a four-year period. ... Thus, for the purposes of paragraph 12(1)(b), we are of the view that to be able to say that the proceeds of disposition have become receivable, the vendor must have an absolute right, though not necessarily immediate, to the consideration and, secondly, that the proceeds of disposition are determined or determinable. ...