The Taxpayer, which is not in the business of exploration and development of mineral properties, wishes to transfer the Property (which may consist of subsurface rights to explore for qualifying mineral or hydrocarbon resources) on a tax deferred basis to a taxable Canadian corporation in consideration for shares. Respecting the operation of the s. 85(1) election, CRA stated:
In the case of a CRP [Canadian resource property], the rules in subsection 85(1) do not establish a minimum limit for the agreed amount. Hence, where the Taxpayer transfers the Property to a corporation pursuant to subsection 85(1), the agreed amount can be any amount up to the fair market value of the Property. Pursuant to paragraph 85(1)(a), the agreed and elected amount is deemed to be the Taxpayer’s proceeds of disposition of the Property and the corporation’s cost of the Property.
…The amount of the reduction to the Taxpayer’s CCDE is equal to the proceeds of disposition received by the Taxpayer as a result of the disposition, less outlays or expenses made or incurred for the purpose of the disposition and that are not otherwise deductible for the purposes of Part I of the Act. If the Taxpayer’s CCDE becomes negative as a result of this reduction, the negative amount must be included in income for that taxation year pursuant to subsection 66.2(1) and paragraph 59(3.2)(c).