Family Mineral Estate Planning
Many mines and minerals in Canada are owned by private individuals. These properties are often referred to as "freehold minerals" to distinguish them from minerals owned by the Crown. The Estate Planning issues associated with ownership of freehold minerals are special and unique. Our firm has a long history of representing freehold mineral owners in connection with these matters, assisting them with every aspect of Estate and Tax Planning requirements.
The income generated from leasing and development of oil rights can be very substantial. With this income, however, often comes high tax burdens. The most severe of these can be the tax imposed on a mineral owner's estate following his death. Many families have been surprised to find that a very large portion of their parent's estate has been depleted by a high and unexpected tax assessment.
Royalties and other income from oil rights are taxed according to the special rules contained in the Income Tax Act relating to Canadian Resource Properties. These rules create some tax liabilities and tax credits which are unique to oil royalties, leasing and transfers. Many owners have tax credits available which they are unaware of and so go unused. Special care is essential to ensure that mineral owners are not paying more tax than they should.
Owning and transferring mineral rights
Apart from the tax problems, mineral titles often become very confusing and complicated, especially as they are passed from generation to generation and the number of family owners grows. This can make it very difficult to transfer them to children, which in turn can make it difficult for family to lease the oil rights. As a result, many valuable properties sit idle and undeveloped.
Some properties also sit only partially developed, encumbered by leases and caveats. These caveats and other problems can often be cleared with the assistance of offset and other obligations.
Practical Solutions for Difficult Problems
Fortunately, most of these problems can be overcome with proper planning and re-organization of mineral ownership. Family owners who wish to streamline their titles to make it easier to lease them, save tax, and also to make it easier to pass them on to their children can often do so with the proper use of a Family Mineral Holding Corporation, Partnership or Agency. These tax and estate planning tools can be used to share income among spouses, children and other family members while saving tax in the process. They also provide an efficient means of saving estate tax and creating an ownership structure which will allow any number of family members to participate in the benefits of oil development. This gives parents the comfort of knowing that they can be fair to all of their children, and relief from the worry that the value of their estate will be devastated by income tax obligations.
Petroleum & Natural Gas Leases
The first step to development of your mineral holdings is the granting of an appropriate Petroleum and Natural Gas Lease to a reputable oil company. Mineral titles which have been "carved up" into fractional interests are much more difficult to lease. Many planning tools are available to consolidate these title, making them more attractive to prospective oil companies, thereby enhancing the prospects of development of your properties.
Many mineral owners have heard that oil and gas rights are subject to very heavy taxation. While there appear to be many misconceptions among the general public regarding this taxation, it is very true that the tax imposed upon these properties on the death of a mineral owner or upon a transfer to children can be extremely onerous. Our firm is very experienced in these issues and in all of the planning tools available to minimize these tax burdens. These planning tools include the use of Family Mineral Holding Corporations, Agencies, Partnerships and Trusts.
Family Mineral Holding Corporation
The Family Mineral Holding Corporation has been and remains one of the most popular and efficient planning tools available to solve these tax and estate planning problems. Used in conjunction with other agreements and arrangements such as Discretionary Family Trusts and Shareholder Agreements, mineral titles can be held by these Corporations for the benefit of the mineral owners and their children and other future generations in a manner which will avoid or minimize taxation.
Agencies, Partnerships, & Trusts
In appropriate circumstances, a Family Mineral Partnership can be used in place of a Family Mineral Holding Corporation to accomplish the same objectives, while simplifying some of the tax issues normally associated with a Corporation. In other cases, simpler arrangements such as a Family Mineral Agency or Family Mineral Trust can be utilized, although for tax reasons the use of Family Mineral Trusts has become largely obsolete.