Section 66.3

Subsection 66.3(1) - Exploration and development shares

Administrative Policy

89 C.P.T.J. - Q. 14

Where an amalgamated corporation on the amalgamation acquires pre-November 13, 1981 flow-through shares owned by a predecessor, those shares will not be deemed to be inventory because the amalgamated corporation did not acquire them in the circumstances described in s. 66.3(1)(a).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 87 - Subsection 87(1) 57

Subsection 66.3(3) - Cost of flow-through shares

See Also

JES Investments Ltd. v. The Queen, 2006 DTC 3608, 2006 TCC 508, aff'd 2007 FCA 337

A corporation with which the taxpayer had entered into a flow-through share agreement did not in fact incur CEE or renounce to the taxpayer. In response to an argument of the Crown that once issued as a flow-through share, a share retains its flow-through status even if there is a failure to renounce, Sheridan J. found that given that the agreement was never in fact performed as intended, the shares retained their character as ordinary shares, so that s. 66.3(3) did not apply to deny a capital loss.

Administrative Policy

17 September 2018 External T.I. 2018-0751571E5 F - Adjusted cost base of property

s. 66.3(3) does not apply to the cost of shares received on a ss. 85(2) and (3) wind-up of a flow-through share partnership

A taxpayer ("Taxpayer") subscribed for limited partnership units in a limited partnership ("LP"), which used the funds raised to subscribe for flow-through shares, with resulting renunciations of Canadian exploration expenses to LP being allocated to each limited partner including the Taxpayer.

Approximately two years later, the LP transferred its property (the flow-through shares) on s. 85(2) rollover basis to a variable capital investment company ("SIVAC") in consideration for common shares of SIVAC, and LP was then wound-up under s. 85(3), so that the SIVAC shares of LP were distributed to the limited partners, including the Taxpayer.

Is the ACB of the SIVAC shares distributed to the limited partners necessarily nil, i.e., does s. 66.3(3) deem a nil cost to such shares in the Taxpayer’s hands? CRA responded:

Although the ACB of the flow-through shares held by LP is deemed to be nil under subsection 66.3(3), the ACB related to the Taxpayer's ownership interest in LP could be other than nil.

Consequently … the cost incurred by the Taxpayer for shares of the capital stock of SIVAC … is deemed, by virtue of paragraph 85(3)(f), to be equal to the ACB of the Taxpayer’s interest in the LP immediately before the winding-up of LP.

The computation of the Taxpayer's ACB for the Taxpayer’s interest in LP, which would be a capital property, should be in as set out in paragraphs 53(1)(e) and 53(2)(c) (taking into consideration, among other things, subsection 66.8(1) et seq.) and could, depending on the circumstances, be other than nil.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 85 - Subsection 85(3) - Paragraph 85(3)(f) operation of s. 85(3)(f) on wind-up of flow-through LP not affected by s. 63.3(3) 84


Gregory M. Johnson, Wesley R. Novotny, "An Update on Flow-through Shares in the Energy Sector", 2016 Conference Report (Canadian Tax Foundation),12:1-39

Application based only on valid flow-through share (FTS) agreement (p. 12:7)

... The Canada Revenue Agency's (CRA's) administrative position is that subsection 66.3(3) applies regardless whether the PBC actually renounces any of the covenanted renunciations. [f.n. 35 … 1999-0014275 … and … 2002-0128435 …]. A purported FTS which is ultimately determined to be a prescribed share is not, however, subject to subsection 63.3(3) and instead has full cost base. [f.n. 36 … 2000-0062937 …].