22 July 2002 External T.I. 2002-0148045 - Similar Properties - Minerals

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 CCRA.

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

Principal Issues: Whether nickel or other base metals and various industrial minerals are considered to be similar properties for purposes of subparagraph 111(5)(a)(ii) of the Act. You also asked for our views on whether a mineral that is characterized as an industrial mineral only because it does not meet the specific test in paragraph (d) of the definition of mineral resource in subsection 248(1) of the Act, would be considered a similar property to mineral resources such as nickel or other base metals.

Position: Question of fact

Reasons: The term 'similar properties' is broad enough such that base metals and industrial minerals are not precluded from being similar properties, if the facts of the situation support that finding. As well, an industrial mineral that does not meet the test in paragraph (d) of the definition of 'mineral resource' in subsection 248(1) is not precluded from being considered to be a similar property to a mineral resource such as nickel or other base metals if the facts support that conclusion.

XXXXXXXXXX
2001-014804
David Shugar
(613) 957-2134
July 22, 2002

Dear XXXXXXXXXX:

Re: Interpretation of subparagraph 111(5)(a)(ii) of the Income Tax Act (the "Act")

This is in reply to your letter of June 17, 2002, in which you requested a technical interpretation as to whether nickel or other base metals and various industrial minerals are considered to be similar properties for purposes of subparagraph 111(5)(a)(ii) of the Act. You also asked for our views on whether a mineral that is characterized as an industrial mineral only because it does not meet the specific test in paragraph (d) of the definition of mineral resource in subsection 248(1) of the Act, would be considered a similar property to mineral resources such as nickel or other base metals.

All statutory references in this letter are to the Act.

Our Comments

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an Advance Income Tax Ruling request. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments.

Subparagraph 111(5)(a)(ii), amongst other things, permits a deduction of a non-capital loss incurred prior to an acquisition of control from income "from any other business substantially all the income of which was derived from the sale, leasing, rental or development, as the case may be, of similar properties or the rendering of similar services." Specific guidelines have not been established for the determination of whether the 'similar properties' test has been satisfied. Whether the requirements of subparagraph 111(5)(a)(ii) are satisfied in a particular situation is a question of fact that can only be resolved after consideration of all the relevant facts of a particular situation with respect to the specific minerals that are being evaluated. In the context of subparagraph 111(5)(a)(ii) it has been our longstanding position to interpret the word 'similar' broadly, giving it the meaning of 'of the same general nature or character.'

The Canada Customs and Revenue Agency ("CCRA") has previously opined that income derived by a corporation that carried on a business of extracting, processing and selling uranium and income derived by a corporation that carried on a business of extracting, processing and selling gold were considered to be from the sale of similar properties for the purposes of subparagraph 111(5)(a)(ii), since uranium and gold are both "minerals" within the meaning of subsection 248(1). CCRA has also opined that tin and uranium should be interpreted as being "similar properties"; that is, both are properties of the same general nature or character, for the purposes of subparagraph 111(5)(a)(ii). CCRA has also taken the same position regarding subparagraph 111(5)(a)(ii) with respect to metallurgical coal and other metals (such as base and precious metals).

It is our view that base metals and industrial minerals are not precluded from being similar products for purposes of subparagraph 111(5)(a)(ii). It is also our view that an industrial mineral that does not meet the test in paragraph (d) of the definition of mineral resource in subsection 248(1) and a mineral resource such as nickel or other base metal, are not precluded from being similar properties. In both situations a determination can be made only after a review of the relevant facts in each particular situation.

We trust our comments will be of assistance to you.

Yours truly,

for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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