Royalty arrangements in jeopardy

"Draft income tax amendments aimed primarily at certain carve-out arrangements prevalent in the oil and gas industry could have devastating results for long standing royally arrangements in the mining industry . Whether or not this potentially damaging effect is intended is largely beside the points-the point is that the mining industry would be well advised to become familiar with the draft amendments and make sure that the potential damage to existing and future royalty agreements is minimized.The draft amendments fail to take into account the nature of mineral royalties and app ear to reflect a lack of understanding of the characteristics of the mining industry.IntroductionOn July 19, 1985 Finance Minister Michael Wilson released draft amendments to the Income Tax Act which are intended 10 effectively thwart the use of so called “carve-out arrangements"".Unfortunately, the proposed amendments are so broad and far- reaching that countless ""innocent"" royalty arrangements in the mining industry, and in the oil and gas industry, are threatened. The potential harshness of the new rules would be compounded by the retroactive application to the amendments to longstanding royalty and similar agreements."