News of Note
Seabridge – BC Supreme Court finds that pre-feasibility expenses to assess whether a deposit could potentially support a mine qualified as exploration expenses
Email this ContentSeabridge incurred various pre-feasibility expenses in relation to a large and complex gold-bearing deposit in BC. Many or most of the expenses were for consultants’ studies targeted at getting a better understanding as to whether a mine at the site might potentially be economically viable (along with some geotechnical drilling).
The “qualified mining exploration expense” definition in s. 25.1(1) of the BC Income Tax Act relevantly referred (like (f) in the Canadian exploration expense definition in ITA s. 66.1(6)) to “the purpose of determining the existence, location, extent or quality of a mineral resource” in B.C. In finding that such expenses so qualified, Maisonville J stated:
[M]ineral resource depends not only on the direct physical characteristics of the mineral resource, but also the broad range of factors that inform the economic viability of its extraction. Thus expenses that assist in the determination of the economic viability of a mineral resource are captured under the “quality” term of the purpose test, subject to the limitation that the expenses must be specific to a mineral resource in British Columbia being explored.
Neal Armstrong. Summary of Seabridge Gold Inc. v British Columbia, 2025 BCSC 558 under s. 66.1(6) – CEE – (f).
3308367 Canada – Court of Quebec confirms that a CBCA corporation can be assessed within 2 years of its dissolution – or thereafter, if revived by the ARQ or CRA
The ARQ assessed the taxpayer within two years of the taxpayer’s dissolution pursuant to s. 210(3) of the CBCA. Six days later, and also within the two-year period, the ARQ revived the taxpayer pursuant to s. 209 of the CBCA.
In rejecting the taxpayer’s submission that the notice of assessment should have been for a nil amount since, at the time of its issuance, the taxpayer was still dissolved, Breault JCQ adopted the proposition in Watts (2023 TCC 11) that the Minister could assess a dissolved corporation within two years of its dissolution pursuant to s. 226(2)(b) of the CBCA and, following such two-year period, could also assess it if the corporation was revived. Here, given that both the assessment and revival occurred within the two-year period, the assessment was clearly valid.
Neal Armstrong. Summary of 3308367 Canada Inc. v. ARQ, No. 500-80-043022-228 (17 March 2025) under CBCA s. 226(2)(b).
Income Tax Severed Letters 26 March 2025
This morning's release of two severed letters from the Income Tax Rulings Directorate is now available for your viewing.
IWK Health – Tax Court of Canada finds that employers could not claim HST on the reimbursed health care expenses of their employees
Some Nova Scotia hospitals reimbursed (through a health care plan administrator) their employees for the employees’ costs including HST of acupuncture, massage therapy, naturopathy, or homeopathy services. The hospitals took the position that they were deemed by s. 175 to have received those care services themselves, and claimed public service body (PSB) rebates accordingly.
Wong essentially followed Westcoast Energy in rejecting this position, stating that those services were “of a particularly personal and individual nature” and that she would expect the employees “to access these types of services on their personal time.” Accordingly, these services did not satisfy the s. 175 test of being “for consumption or use … in relation to activities” of the hospitals.
Neal Armstrong. Summary of IWK Health Centre v. The King, 2025 TCC 44 under ETA s. 175(1).
Excavations Marchand – Court of Quebec finds that a construction company’s equipment used to provide concrete at a construction site qualified as for manufacturing goods for sale
A construction company contracted with Hydro-Quebec for the installation and operation of an on-site portable concrete-producing facility for the provision of the concrete in the installation of a large hydro-electric dam at a remote location. Trudel JCQ found that such contract should be characterized as for the manufacturing of goods (the concrete) for sale, rather than as a contract of service, given that the predominant intention was to provide for the supply of cement to Hydro-Quebec.
He further found that the exclusion from a manufacturing operation for “construction” did not apply given the distinctness and separation of this operation from the construction business of the company. Accordingly, an ice maker and silos used in the operation qualified as Class 29 property that was qualified property for Quebec investment tax credit purposes.
Neal Armstrong. Summaries of Excavations Marchand et Fils Inc. v. Agence du revenu du Québec, 2025 QCCQ 378 under Class 29 and Reg. 1104(9)(c).
We have translated 6 more CRA interpretations
We have translated a further 6 CRA interpretations released in December and November of 2000. Their descriptors and links appear below.
These are additions to our set of 3,145 full-text translations of French-language Technical Interpretation and Roundtable items (plus some ruling letters) of the Income Tax Rulings Directorate, which covers all of the last 24 1/3 years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5th of each month).
CRA publishes detailed views as to when a partnership will be recognized
CRA has published a GST/HST Memorandum on what constitutes a partnership which is more detailed than the Income Tax Folio on this subject. Points of interest include:
- A partnership cannot come into existence prior to the time that its partners commence to carry on business in common with a view to sharing profits of the business, so that, for example, a limited partnership which has been registered as such is not a partnership if it has not commenced to carry on business [accord D Marks cf. Bank of Beirut SAL v Prince Adel El-Hashemite].
- Consistent with Backman, a business must actually be carried on for more than a brief moment in time before being disposed of in order for an alleged partnership to in fact be formed.
- For purposes of the requirement that there be a sharing of profits, the ordinary commercial meaning of profit can include an increase in the value of assets (which suggests that profits for this purpose can include mark-to-market profits, such as under a carry).
- Where a person receives a salary or other remuneration that is not based on its interest in the partnership, then that person is not considered to be acting in partnership with the other parties engaged in the subject activity [per contra, Zahid Solicitors].
- Events that may result in a partnership ceasing to exist include:
- the conversion of a general partnership to a limited partnership such that the general partnership ceases to exist [cf. 2016-0660321R3 and 1992 Corporate Management Tax Conference Report (CTF), Q.11]
- a change in the members of a partnership, such as when a person ceases to be a member or a new person is admitted as a member [even though most partnership agreements expressly provide the opposite?]
- an event occurs that makes the partnership business illegal [cf. Continental Bank]
- Somewhat contrary to the above position, that reference should be made to whether a business in fact is carried on, it is stated that until dissolution of a partnership is evidenced by duly-filed declaration, the dissolution is not effective with respect to third parties (presumably including CRA).
- Where a foreign jurisdiction permits a person to be admitted to a limited partnership as a general partner or as a limited partner without obligation to make a contribution, this is inconsistent with provincial partnership law, so that in such circumstances a determination must be made, under the two-step approach to entity classification, as to whether the entity is closer to a partnership than other some other form of organization recognized under Canadian law.
- There is a detailed description of the differences between a co-ownership arrangement and a partnership
Neal Armstrong. Summary of GST/HST Memorandum 14-9-1 “Partnerships - Determining the Existence of a Partnership” March 2025 under s. 96.
CRA confirms that a return of premiums at maturity of a term life insurance policy can be mostly income
In response to a query as to why the taxpayer was issued at T5 slip for the receipt on the maturity of a term life insurance policy of a return of premiums (ROP) benefit (i.e., an amount equal to the total previously paid premiums under the policy), CRA provided a general explanation of how a policy gain under s. 148(1) is computed, and then referred the correspondent to White for further illumination.
In White, Mogan J confirmed that substantially all of the $24,909 ROP benefit received by the taxpayer on the maturity of his term life insurance policy was taxable to him given that the ACB of his policy had been reduced to $1,021 by the net cost of pure insurance (NCPI) for his policy.
In explaining this result, Morgan J stated:
A very large portion of all premiums paid by the Appellant was for life insurance. He had full value for that very large portion of premiums because his life was insured for 22 years. Therefore, it is not reasonable to think of the insurer as paying back (upon the expiry of the term) any of the premiums for which it had already provided full value. What the insurer paid as a benefit upon the expiry of the term was not, in a business sense or in an income tax sense, any part of the premiums for life insurance. … It was part of the insurer’s earnings.
Neal Armstrong. Summary of 21 January 2025 External T.I. 2024-1041441E5 under s. 148(9) – proceeds of disposition.
Csak – FCA confirms a s. 160 challenge on the basis that a TCC judgment of the transferor was incorrect, and confirms that a waiver time limit falling on a Sunday was extended
The taxpayer challenged assessments of her under s. 160(2) respecting unpaid tax of her late husband for his 1988 and 1989 taxation year by arguing that the CRA assessments of him for those years were statute-barred given that CRA had not received a waiver on a timely basis (which had been found by Owen J to be the case for his 1988 taxation year and, in the case of his 1989 taxation year, turned on the proposition that the receipt by CRA of a waiver on a Monday was one day following the expiry of the normal reassessment period on the Sunday).
Biringer JA confirmed (based on Gaucher) that the taxpayer was not precluded from disputing the validity of the assessments of her under s. 160(2) on the grounds that the waivers proffered by CRA were invalid, even though this issue might have been raised, but was not, in the Makuz (2006 TCC 263) group appeals in which the CRA assessments of her husband’s 1988 and 1989 taxation years had been confirmed. Similarly, there was no abuse of process in collaterally attacking the judgments in Markuz (with her waiver arguments) given that the taxpayer had not been a party to that litigation (otherwise than, latterly, as an executor of her husband’s estate) and that Owen J had determined that it was “untenable” to expect her to have raised the waiver-timing issue in those appeals.
In the case of her husband’s 1989 taxation year, this then left the issue as to whether s. 26 of the Interpretation Act had extended the time for the receipt by CRA of the waiver to the Monday. In finding that this had occurred (and in reversing Owen J on this point), Biringer JA stated:
Section 26 is a remedial provision. It provides relief when the time limit for doing a thing expires on a holiday, allowing the thing to be done on the next day that is not a holiday. …
I am satisfied that the filing of a waiver is the “doing of a thing” for the purposes of section 26 … .
… I do not view the time limited for filing a waiver as conceptually different for this purpose from the deadlines for filing a notice of objection or notice of appeal … .
Neal Armstrong. Summaries of Canada v. Csak, 2025 FCA 60 under s. 160(2), s. 152(4)(a)(ii) and General Concepts – Abuse of Process.
Income Tax Severed Letters 19 March 2025
This morning's release of three severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Neal H. Armstrong editor and contributor