CRA applies Rio Tinto approach to categorization of mine design studies

CRA has published a table indicating the classification of various categories of pre-mining expenditures as Canadian exploration expense, Canadian development expense, deductible expense under s. 9, Class 41 or 41.2 (or other) depreciable property, or “eligible capital expenditure” (i.e., Class 14.1 property).

In addition to the most obvious items, CEE includes:

  • environmental studies and community consultation
  • sampling - generally only up to decision to bring the mine into production, but also where done to expand the mineral resource (but not where done for technical feasibility purposes)
  • bulk sampling (in reasonable sizes)
  • mineralogical analysis and laboratory testing of drilling cores
  • resource estimation and deposit delineation
  • deposit modelling and determination of cut-off grade
  • testing of host rock stability, and testing of ore dilution and breakability
  • metallurgical testing if for determining whether separation of pay metals is feasible (but not for determining the optimal method of separation)

Rio Tinto found that expenditures incurred determining whether to proceed with an acquisition on capital account are currently deductible. Although not framed in those terms, CRA has essentially applied the Rio Tinto approach to finding that the costs of mine design and development studies (including those of evaluation of different technically feasible options for processing the ore) are currently deductible under s. 9 (but not as CEE) to the extent that they are incurred before the decision is made to bring the mine into production. (See also 2014-0520941E5 F.)

Neal Armstrong. Summary of 21 February 2019 Internal T.I. 2019-0796791I7 under s. 66.1(6) – CEE – para. (f).