A mille for a junior

"The junior mining company's bank account is depleted, but there are high hopes for the company's property. Where to get the necessary development funds is a common problem facing many juniors.This month, Tax Notes discusses briefly the principal income tax implications of several alternative development plans that are typically available to the junior mining company and its shareholders.IntroductionAt some point in time, many junior exploration companies face a common dilemma-a promising prospect has been proven up and is read y for further development, but alas, the company is flat broke! In this situation, a number of alternatives is available to the company, including the possibility of ""going it alone"" by raising capital through a public offering, or by striking a deal with a ""major"" or some other substantial investor.This article focuses on the latter possibility, and discusses in broad term s the main income tax implications of various arrangements between a typical junior exploration company and a larger public company for the development of a particular property. It will be appreciated that a discussion of other important considerations, such as those pertaining to securities exchange regulation s and company law requirements, is beyond the scope of this article.Jointly Owned CorporationPerhaps the simplest way of dealing with the problem of financing the development of a property is to sell the property outright, pocket the proceeds, and run! Clearly, though, this alternative is unacceptable to most prospectors and developers, who are predictably reluctant to completely relinquish their equity interest in a promising property. An additional strike against such an outright sale is that the sale could trigger an income tax liability. Generally speaking, in the case of a simple sale of a mineral property, for income tax purposes the proceeds are applied to reduce the taxpayer' s unclaimed balance of Canadian development expense (""CDE""), with any unapplied excess being brought into income and taxed at ordinary corporate tax rates."