Cases
Tusk Exploration Ltd. v. Canada, 2018 FCA 121
In the course of a general discussion, Webb JA stated (at para. 5):
Although subsection 66(12.6) of the ITA only refers to a “corporation”, since only a “principal-business corporation” can issue a flow-through share (as a result of the definition of flow-through share), only a principal-business corporation can renounce CEE under subsection 66(12.6) of the ITA.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 211.91 - Subsection 211.91(1) | Part XII.6 tax was payable on CEE purportedly renounced on a look-back basis to NAL shareholders | 515 |
| Tax Topics - Income Tax Act - Section 248 - Subsection 248(28) | potential for double taxation under the ITA of NAL transactions | 305 |
| Tax Topics - Income Tax Act - Section 69 - Subsection 69(1) - Paragraph 69(1)(a) | double taxation can result from non-arm’s length transactions such as under s. 69(1) | 301 |
See Also
Hamilton v. The Queen, 97 DTC 787, [1997] 1 CTC 2446 (TCC)
The payment of licence fees of a resource company by the taxpayer on the basis that the corporation would issue flow-through shares to him to reimburse him for the expenditure did not give rise to a deduction to the taxpayer because the corporation did not satisfy the filing requirements of s. 66(12.68).
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(b) - Capital Loss v. Loss | 56 | |
| Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(m) | 90 |
Administrative Policy
11 October 2013 Roundtable, 2013-0495271C6 F - Flow-through shares and death
An individual who acquired flow-through shares of a principal-business corporation (PBC) on February 1, 2013, entered into a flow-through share agreement in writing, and died on December 30, 213. What deductions and credits would be available in the deceased’s terminal return or to the estate?
[A] renunciation of CEE or CDE by a PBC to a particular person cannot take effect after the death of that person because the particular person ceases to exist at the time of death. In addition, and subject to subsection 66(12.66), a PBC cannot renounce any expenses that it has incurred on or before the date the renunciation takes effect.
For the purposes of the flow-through share regime described in the Act, the estate of a deceased person and the beneficiaries of the estate cannot be considered as the same person as the deceased. The PBC cannot, therefore, renounce CEE or CDE to them in respect of the PBC flow-through shares acquired by the deceased who had entered into an agreement with that PBC for such flow-through shares. As a result, the estate or beneficiaries of the estate will not be entitled to any deduction or credit in respect of the flow-through shares.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 66 - Subsection 66(12.66) | lookback unavailable where taxpayer was deceased on December 31 of look-back year | 199 |
9 August 2012 External T.I. 2012-0455341E5 - CEE/CDE incurred by Subsidiary
Whee a subsidiary principal business corporation issues flow-through shares to its parent (also a principal business corporation) and uses the proceeds to incur qualifying CEE and CDE, the subsidiary may be entitled to renounce those expense to the parent under s. 66(12.6). The parent then would be entitled to renounce those expenses to its flow-thoough share investors, given that the prohibition in s. 66(12.6709A0 against renouncing previously renounced expenses does not apply to related corporations. However, by virtue of s. 66(12.66)(d), the subsidary cannot renounce CEE and CDE to the parent using the "look-back" rule in s. 66(12.66).
92 C.R. - Q.15
CEE that has been renounced to a shareholder corporation by a JEC cannot then be renounced by the shareholder corporation to a third party under the terms of a flow through share agreement.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 66 - Subsection 66(10.1) | 35 |
14 September 89 T.I. (February 1990 Access Letter, ¶1108)
ss.16(12.6), (12.62) and (12.64), when they refer to "agreement" are reiterating the requirement in s. 66(15)(d.1) that the agreement be legally binding in order for expenses to "flow through" to a shareholder. The agreement, therefore, must be written.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - General Concepts - Effective Date | 165 |
Articles
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
No tracing and aggregation of CEE before flow-through share issuance (pp. 12:8)
The PBC is not required to trace the FTS subscription proceeds to the actual payment of the relevant expenses incurred. [f.n. 40 … 9507845 …]. ...
Although no renunciation of a relevant expenditure is permitted unless the PBC actually issues a share or right to a share, nothing prevents a PBC and a FTS subscriber from executing a subscription agreement before any consideration is paid to the PBC or the FTS is issued. This allows the PBC to aggregate the relevant expenditures for renunciation prior to receiving payment for and issuing the FTS. [f.n. 46 … 9604945 …].
Ronald Richler, "Creststreet Income Fund Uses Flow-Through Shares", Corporate Finance, Vol. XI, No. 4, 2004, p. 1124.
Paragraph 66(12.6)(a)
Administrative Policy
21 March 2006 External T.I. 2005-0158451E5 F - Québec Mining Duties Act - Credit for Losses
S. 32 of the Quebec Mining Duties Act (MDA) provided a credit to an operator equal generally to an amount not exceeding 12% of the lesser of (i) its annual loss (excluding the portion thereof attributable to ore processing activities) and (ii) the amount by which the expenses in respect of exploration, mineral deposit evaluation and mine development work, incurred by the operator for the fiscal period in connection with the mining operation, exceeds the amount of government assistance that the operator received or was entitled to receive relating to those expenses.
After finding that this credit was not required to be included in income under s. 12(1)(x.2), CRA went on to state:
[P]aragraph 66(12.6)(a) should not apply to an amount that a corporation has received, is entitled to receive, or may reasonably expect to receive as an RDCL at a particular time, since it would not be reasonable to relate that amount as an RDCL to CEE incurred or to related Canadian exploration activities. That is because the RDCL amount would be too remote from the CEE incurred or related Canadian exploration activities and therefore would not be sufficiently directly related to such CEE and activities to come within paragraph 66(12.6)(a).
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 66.1 - Subsection 66.1(6) - Cumulative Canadian exploration expense - Element J | credit under the Quebec Mining Duties Act based on exploration and development losses of operator was not “assistance" under J | 207 |
| Tax Topics - Income Tax Act - Section 12 - Subsection 12(1) - Paragraph 12(1)(x.2) | credit under the Quebec Mining Duties Act based on exploration and development losses of operator was not includible under s. 12(1)(x.2) | 208 |
Articles
Emmanuel Sala, "Flow-Through Share Financing: Recent Developments, Traps and Tips", 2015 CTF Annual Conference paper
Whether reduction for Quebec resource credit (pp. 10:24-25)
A problem arises when mining projects located in the province of Quebec are financed through the issuance of flowthrough shares and non-Quebec investors are involved. A mining corporation involved in such a financing could flirt with the idea that in the event of misqualification of an expense as paragraph 66.1(6)(f) eligible mining CEE, it would only have to substitute, for purposes of the renunciation, an expense in respect of which the Quebec resources credit could have been claimed. In such a situation, however, the CRA could argue that at the time of the renunciation, the corporation could reasonably have expected to receive, at a given time, a Quebec resources credit in respect of the substituted expenditure. ...
Paragraph 127(11.1)(c.2) ITA states that the amount of government assistance in respect of expenses included in the calculation of a taxpayer's flowthrough mining expenditure reduces that expenditure if, at the time of filing his return of income for the year, the taxpayer has received, is entitled to receive or can reasonably be expected to receive the assistance in question.
Paragraph 66(12.6)(a) seems broader to us because the reasonability test it contains is not limited to the time of filing the return of income.