Income Tax Act — I-3.3 66.3
Exploration and development shares 66.3 (1) Any shares of the capital stock of a corporation or any interest in any such shares or right thereto acquired by a taxpayer under circumstances described in paragraph (i) of the definition Canadian exploration expense in subsection 66.1(6), paragraph (g) of the definition Canadian development expense in subsection 66.2(5) or paragraph (c) of the definition Canadian oil and gas property expense in subsection 66.4(5) (a) shall, if acquired before November 13, 1981, be deemed (i) not to be a capital property of the taxpayer, (ii) subject to subsection 142.6(3), to be inventory of the taxpayer, and (iii) to have been acquired by the taxpayer at a cost to the taxpayer of nil; and (b) shall, if acquired after November 12, 1981, be deemed to have been acquired by the taxpayer at a cost to the taxpayer of nil. Deductions from paid-up capital (2) If, at any time after May 23, 1985, a corporation has issued a share of its capital stock under circumstances described in paragraph (i) of the definition Canadian exploration expense in subsection 66.1(6), paragraph (g) of the definition Canadian development expense in subsection 66.2(5) or paragraph (c) of the definition Canadian oil and gas property expense in subsection 66.4(5) or has issued a share of its capital stock on the exercise of an interest in or right to — or, for civil law, a right in or to — such a share granted under circumstances described in any of those paragraphs, in computing, at any particular time after that time, the paid-up capital in respect of the class of shares of the capital stock of the corporation that included that share (a) there shall be deducted the amount, if any, by which (i) the increase as a result of the issue of the share in the paid-up capital, determined without reference to this subsection as it applies to the share, in respect of all of the shares of that class exceeds (ii) the amount, if any, by which (A) the total amount of consideration received by the corporation in respect of the share, including any consideration for the interest or right in respect of the share exceeds (B) 50% of the amount of the expense referred to in paragraph (i) of the definition Canadian exploration expense in subsection 66.1(6), paragraph (g) of the definition Canadian development expense in subsection 66.2(5) or paragraph (c) of the definition Canadian oil and gas property expense in subsection 66.4(5) that was incurred by a taxpayer who acquired the share or the interest or right on the exercise of which the share was issued, as the case may be, pursuant to an agreement with the corporation under which the taxpayer incurred the expense solely as consideration for the share, interest or right, as the case may be; and (b) there shall be added an amount equal to the lesser of (i) the amount, if any, by which (A) the total of all amounts each of which is an amount deemed by subsection 84(3), (4) or (4.1) to be a dividend on shares of that class paid by the corporation after May 23, 1985 and before the particular time exceeds (B) the total that would be determined under clause (A) if this Act were read without reference to paragraph 66.3(2)(a), and (ii) the total of all amounts each of which is an amount required by paragraph 66.3(2)(a) to be deducted in computing the paid-up capital in respect of that class of shares after May 22, 1985 and before the particular time. Cost of flow-through shares (3) Any flow-through share (within the meaning assigned by subsection 66(15)) of a corporation acquired by a person who was a party to the agreement pursuant to which it was issued shall be deemed to have been acquired by the person at a cost to the person of nil. Paid-up capital (4) Where, at any time after February, 1986, a corporation has issued a flow-through share (within the meaning assigned by subsection 66(15)), in computing, at any particular time after that time, the paid-up capital in respect of the class of shares of the c