The questioner stated that in 9406335, CRA stated that it would not extend its position in IT-125R4, para. 14 respecting farm-out arrangments that did not give rise to a disposition, to the acquisition of a royalty in exchange for exploration and drilling activities performed by the farmee on unproven Canadian resource properties of the farmor. When asked whether it would extend its policy in IT-125R4 to a situation where the interest transferred by the farmor to the farmee is a royalty, CRA stated that, as stated in 9406335, it
is prepared to consider, on an individual basis in the context of an advance income tax ruling application, whether such farmout treatment will be applied to a proposed transaction wherein a farmee is to obtain a royalty interest in exchange for exploration and drilling activities that it will perform on an unproven property of the farmor.