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. The agreement was subject to specified conditions precedent.
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. Thus, for the purposes of F in the definition of CCDE in subsection 66.2(5), the amount of $XXXXXXXXXX should be part of the proceeds of disposition that became receivable by the Vendor in respect of the Mining Properties on the effective date of the agreement.
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 … .
The Directorate also stated that it was prepared to extend the position in IT-125R4, para. 14 respecting farmouts to this situation, so that:
an amount equal to the exploration expenses [required to be incurred by the Purchaser] would not result in proceeds of disposition to the Vendor for purposes of element F … .