Wesdome - Quebec Court of Appeal finds that exploration from an uneconomic mine permitting it to recommence processing qualified as “f” CEE - and that a reassessment of a wound-up and dissolved sub binds its parent
A company (“Wesdome”) acquired the Kiena mine in Quebec, which had been put on care and maintenance when its reserves had been exhausted over a year earlier, in order that it could extend an existing mine shaft to go under a lake and drill gold targets on its own exploration property to the north. This was a success, and the purchased Kiena mining facilities started processing ore from the new finds several years later. The ARQ had denied CEE deductions under the Quebec equivalent of ITA, s. 66.1(6) – Canadian exploration expense – (f)(vi), which applied to “any expense that may reasonably be related to a mine…that has come into production in reasonable commercial quantities or to an actual or potential extension of such a mine.”
Levesque JCA affirmed the finding below that this exclusion did not apply, so that the CEE deductions were available, but on the basis of a narrower interpretation of the exclusion (stating that “the fact that the mine was open, closed or on care and maintenance does not form part of the criteria provided in T.A. paragraph 395(c) for determining if exploration expenses are eligible for credit.” The correct test apparently was this:
[I]n order for the exclusion in T.A. paragraph 395(c) to apply, there must be a concurrence between the time when the exploration expenses were incurred and the reaching of production in reasonable commercial quantities from the mine.
It therefore should be concluded that if a mine had already reached a level of commercial production in the past, but at the time when the expenses were incurred that level was no longer being achieved, the expenses would be eligible for the tax credit.
For two of the four taxation years in question, Godbout J below had also found that the assessment for each of the two years was invalid “as the Agency had not addressed such Notice of Assessment to the right legal entity,” given that the Notice was issued in the name of Wesdome shortly after its dissolution in voluntary dissolution proceedings for its winding-up into its sole parent. Levesque JCA found that such assessments were not void on this ground (although, as noted above, they were nonetheless to be reversed on the substantive CEE grounds). S. 313 of the Business Corporations Act (Quebec) (which is to somewhat similar effect as s. 226(2) of the CBCA) provided that “As of the dissolution of the corporation, its rights and obligations become those of the shareholder, and the shareholder becomes a party to any judicial or administrative proceeding to which the corporation was a party.” He stated:
The dissolution of Wesdome was effected on March 14, 2011. This did not have the effect of obliterating the tax debt of Wesdome and of annulling the debt. That debt was assumed in conformity with B.C.A. section 313 by the respondent, the sole shareholder of the corporation that had ceased to exist.
This did not directly answer the point of Godbout J that the assessments had been issued in the name of the wrong entity (the dissolved sub rather than the parent). However, Levesque JCA had earlier stated that “the judge had concluded that an audit procedure was in progress at the time of its dissolution” (his emphasis), so that his point might have been that these assessments were to be viewed as part and parcel of the administrative proceedings that, on dissolution, were deemed to be proceedings against the parent.
Neal Armstrong. Summaries of ARQ v. Wesdome Gold Mines Ltd., 28 March 2018, No. 200-09-009254-167 (Queb. C.A.) under s. 66.1(6) - CEE - (f)(vi), s. 152(1), and Canada Business Corporations Act, s. 226(2).