3 May 2000 External T.I. 1999-0015195 - Industrial Mineral Mine

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: Whether the acquisition of a mine, in which a taxpayer had a leasehold interest immediately before the purchase, would be subject to subsection 13(5.1) of the Act.

Position: Question of Fact

Reasons: Depends on whether the mine is determined to be a "mineral resource" or an "industrial mineral mine". Subsection 13(5.1) would apply if the mine is determined to be an "industrial mineral mine".

								993323
XXXXXXXXXX  							A. Seidel
(613) 957-8974
Attention: XXXXXXXXXX 

May 3, 2000

Dear Sirs:

Re: Industrial Mineral Mine

Your letter to the Vancouver Tax Services Office, dated December 17, 1999, concerning subsection 13(5.1) of the Income Tax Act (the "Act") has been referred to us for reply.

The situation described in your letter appears to relate to specific taxpayers and an actual fact situation. To the extent that you require assistance in determining the current tax status of the taxpayers involved, you should contact your local tax services office. To the extent that you require confirmation of the tax consequences of proposed transactions, we bring to your attention Information Circular 70-6R3 dated December 30, 1996 issued by the Canada Customs and Revenue Agency (CCRA). Confirmation with respect to proposed transactions involving specific taxpayers should be the subject of a request for an advance income tax ruling. If you wish to obtain an advance income tax ruling for particular taxpayers with respect to specific contemplated transactions, a written request for an advance income tax ruling should be submitted in accordance with the Information Circular. Nevertheless, we can provide you with the following general comments.

For tax purposes, a mine may be classified as an "industrial mineral mine" if it is not classified as a "mineral resource". The expression "mineral resource" is defined in subsection 248(1) of the Act. The expression "industrial mineral mine" is not defined in the Act. Whether the mining of limestone would qualify as a mineral resource or as an industrial mineral mine is therefore a question of fact which can only be determined after a review of all of the specific details of a particular situation.

Interpretation Bulletin IT-492 ("IT-492") outlines the views of the CCRA with respect to capital cost allowance for an industrial mineral mine. As stated in paragraph 3 of IT-492, an industrial mineral is a non-metallic mineral capable of being used in industry and may include a limestone deposit. As stated in paragraph 2 of IT-492, capital cost allowance in respect of the capital cost of an industrial mineral mine is generally deductible for tax purposes in accordance with the amount computed pursuant to Schedule V of the Income Tax Regulations (the "Regulations") by virtue of paragraph 1100(1)(g) of the Regulations and paragraph 20(1)(a) of the Act. Part XII of the Regulations provides for an allowance in respect of the capital cost of a mineral resource by virtue of subsection 65(1) of the Act.

In the situation where a taxpayer acquires all of the assets of a business, one of which is an interest in a lease to mine certain real property, and then exercises the option in the lease which allows the taxpayer to acquire the real property, the taxpayer would be considered to have had a leasehold interest in that property immediately before the exercise of the option.

Subsection 13(5.1) of the Act applies to a taxpayer where, amongst other things, the taxpayer has a leasehold interest in a particular property immediately before it is acquired by the taxpayer and the particular property "was included in a prescribed class, for the purposes of this section, section 20 and any regulations made under paragraph 20(1)(a)" of the taxpayer. Subsection 13(5.1) of the Act does not require that the leasehold interest must have been included in Class 13 of Schedule II of the Regulations at the time of the acquisition.

If a factual review of the acquisition of a mine determines that the mineral deposit acquired is a mineral resource, subsection 13(5.1) of the Act would not apply to the acquisition. As indicated above, an allowance in respect of the capital cost of a mineral resource is determined pursuant to subsection 65(1) of the Act and Part XII of the Regulations. Neither of these provisions results in this allowance being included in a prescribed class, or being deemed to be included in a prescribed class, such that this requirement in subsection 13(5.1) of the Act cannot be satisfied.

If a factual review of the acquisition of a mine determines that the mineral deposit acquired is an industrial mineral mine, subsection 13(5.1) of the Act could apply to the acquisition. Although an industrial mineral mine is not included in a prescribed class in Schedule II of the Regulations, section 1105 of the Regulations provides that the classes of property provided for in Part XI of the Regulations are "hereby prescribed for the purposes of the Act". Paragraph 1100(1)(g) of the Regulations describes the amount that may be claimed in respect of the capital cost of a property that is an industrial mineral mine or a right to remove industrial minerals from an industrial mineral mine and subsection 1100(1) of the Regulations provides that this amount is, amongst other things, determined for the purposes of paragraph 20(1)(a) of the Act. Therefore, provided that all of the other requirements of the subsection are satisfied, it is our view that subsection 13(5.1) of the Act would apply in the situation where an industrial mineral mine is acquired by a taxpayer and the taxpayer had a leasehold interest in that particular industrial mineral mine immediately before the acquisition.

These comments are provided in accordance with the guidelines set out in paragraph 22 of IC 70-6R3 and are therefore not binding on the CCRA.

Yours truly,

for Director
Resources, Partnerships and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch