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 Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues: Whether a parent corporation can assume the reclamation obligations of its wholly-owned subsidiary and meet the requirements of a "qualifying environmental trust" ("QET") in subsection 248(1) of the Act.
Position: Question of fact.
Reasons: Subsection 248(1) of the Act requires, amongst other things, that the QET must be maintained pursuant to a contract or pursuant to legislative requirements. Each situation would have to be reviewed on its facts including the relevant contract or the relevant legislation.
2000-002220
XXXXXXXXXX A. Seidel
(613) 957-8974
Attention: XXXXXXXXXX
May 16, 2000
Dear Sirs:
Re: Qualifying Environmental Trust
This is in reply to your letter dated April 20, 2000 concerning the deductibility of certain payments made to a "qualifying environmental trust", within the meaning of subsection 248(1) of the Income Tax Act (the "Act"), pursuant to paragraph 20(1)(ss) of the Act.
The situation described in your letter appears to relate to specific taxpayers and an actual fact situation. To the extent that you require assistance in determining the current tax status of the taxpayers involved, you should contact your local tax services office. To the extent that you require confirmation of the tax consequences of proposed transactions, we bring to your attention Information Circular 70-6R3 ("IC 70-6R3") dated December 30, 1996 issued by the Canada Customs and Revenue Agency (CCRA). Confirmation with respect to proposed transactions involving specific taxpayers should be the subject of a request for an advance income tax ruling. If you wish to obtain an advance income tax ruling for particular taxpayers with respect to specific contemplated transactions, a written request for an advance income tax ruling should be submitted in accordance with the Information Circular. Nevertheless, we can provide you with the following general comments.
Paragraph 20(1)(ss) of the Act provides a deduction to a taxpayer for "a contribution made in the year by the taxpayer to a qualifying environmental trust under which the taxpayer is a beneficiary". Subsection 248(1) of the Act defines the expression "qualifying environmental trust" ("QET") (hereinafter referred to as the "Definition"). It provides, amongst other things, that the trust must be maintained for the sole purpose of funding the reclamation of a site that has been used primarily for the operation of a mine and that it must be maintained pursuant to a contract entered into with Her Majesty in right of Canada or a province or under a law of Canada or a province. Although the Definition does not specify that the QET must be maintained by the operator of the mine, the Definition does exclude, amongst other things, a trust "that is not maintained at that time to secure the reclamation obligations of one or more persons or partnerships that are beneficiaries under the trust".
Whether or not a corporation can satisfy the requirements of paragraph 20(1)(ss) and the requirements in the Definition in a situation where: a wholly-owned subsidiary of a corporation is the operator of a mine, there is a requirement that the operator fund future reclamation of the site, the subsidiary does not have the financial ability to set up such funding, the parent of the operator assumes the reclamation obligations of the subsidiary and sets up, and is the beneficiary under, a QET, is a question of fact which can only be determined after reviewing all of the facts relating to a specific situation.
Generally speaking, if the review of a particular contract or the legislation pursuant to which a trust is being maintained determines that the reclamation obligations cannot be transferred from a wholly-owned subsidiary to its parent, then it is our view that the trust could not qualify as a QET in those situations where the parent is the only beneficiary of the trust since the trust would not be maintained to secure the reclamation obligations of one or more persons or partnerships that are a beneficiary under the trust.
In the situation where a corporation has entered into a contract with Her Majesty in right of Canada or a province, the terms of the contract would have to be reviewed to determine whether the requirements of the Definition are satisfied and whether the reclamation obligations are those of the parent or the wholly-owned subsidiary. If the contract confirms that the reclamation obligations have been legally transferred to the parent, and all of the other requirements of the Definition are satisfied, it is our view that the exclusion in paragraph (b) of the Definition would not apply. Accordingly, the payments to the QET would be deductible to the parent pursuant to paragraph 20(1)(ss) of the Act.
Similarly, in the situation where a corporation is or may become required under a law of Canada or a province to maintain a QET, the relevant legislation would have to be reviewed to determine whether the reclamation obligations of the corporation can be transferred to another person. If the relevant legislation provides for a transfer of a reclamation obligation from a wholly-owned subsidiary to a parent, and all of the other requirements of the Definition are satisfied, it is our view that the exclusion in paragraph (b) of the Definition would not apply. Accordingly, the payments to the QET would be deductible to the parent pursuant to paragraph 20(1)(ss) of the Act.
These comments are provided in accordance with the guidelines set out in paragraph 22 of IC 70-6R3 and are therefore not binding on the CCRA.
Yours truly,
for Director
Resources, Partnerships and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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