Whereas “Nothing is certain except for death and taxes” (Benjamin Franklin, 1789), freehold mineral owners can minimize the latter with proper estate planning.
Western Canadian freehold mineral rights were initially acquired more than a century ago and have now been passed through three or more generations often resulting in the splitting of title to succeeding generations. Excessive title splitting may ultimately destroy the value of the mineral rights.
Many current freehold owners do not realize that under the Income Tax Act their mineral rights are not capital property but Canadian Resource Property and that passing mineral rights from one generation to the next gives rise to a deemed disposition with the older generation effectively being taxed on the difference between what was paid for the mineral rights and their fair market value on the date of the disposition (ie. the entire amount comes into income; not 50% of this amount as would be the case for a capital gain).
There are ways to reduce title fractionation and in so doing minimize what can be the very significant income tax consequences of passing mineral rights from one generation to the next. FHOA can help.