CRA indicates that expenses focused on determining the economic feasibility of a deposit are not exploration expenses

Regarding the test in para. (f) of “Canadian exploration expense” that the expense generally has been incurred “for the purpose of determining the existence, location, extent, or quality of a mineral resource,” CRA rejected an argument that the “qualify” aspect of this test could encompass expenses for determining the economic feasibility of a deposit, such as expenses for preparing pre-feasibility or feasibility studies, stating:

[E]xpenses that qualify for CEE do not … include expenses for determining the economic viability of a mineral resource if those expenses do not relate to a determination of the natural (e.g., physical, chemical or mechanical) characteristics of the mineral resource. Such expenses are too remote to be described as expenses incurred for the purpose of determining the “quality” of a resource.

Before so concluding that the word ‘quality’ focussed more narrowly on the physical aspects of a deposit as contrasted to its commercial value, CRA:

• Applied the ejusdem generis rule (noting that the first three words in the quoted purpose test referred to “the inherent physical characteristics of the mineral resource.”)
• Indicated that various materials suggested that the purpose of the provision was “the search for, or discovery of, the minerals in the ground,” and that expenses related to “external factors” such as “an overall assessment of economic viability” of the project “extend well beyond the focused nature of an incentive targeted at the activity of mineral exploration.”

Neal Armstrong Summary of 9 February 2022 External T.I. 2020-0873931E5 under s. 66.1(6) – CEE – (f).