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 subsection 66(12.71) of the Act prohibits the renunciation of Canadian exploration expenses (CEE) in a year in which a non-resident principal-business corporation will not have taxable income earned in Canada as computed under subsection 115(1) of the Act.
Position: No.
Reasons: Previous opinions.
XXXXXXXXXX 2001-006918
D. Shugar
May 14, 2001
Dear XXXXXXXXXX:
Re: Flow-Through Shares – Subsection 66(12.71) of the Income Tax Act (the "Act")
This is in reply to your letter of February 7, 2001, wherein you requested our opinion on whether subsection 66(12.71) of the Act prohibits the renunciation of Canadian exploration expenses (CEE) in a year in which a principal-business corporation (PBC) will not have taxable income earned in Canada as computed under subsection 115(1) of the Act. In your example, a non-resident corporation that qualifies as a PBC carries on mining exploration activities in Canada and incurs CEE. The corporation proposes to enter into a flow-through share agreement under which it would renounce future CEE.
Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments.
Subsection 66(12.71) of the Act permits the renunciation of CEE by a corporation only to the extent that, but for the renunciation, the company would be entitled to claim a deduction for the expenses in computing its income. Our interpretation of this provision remains the same as that set out in our reply to Question 24 at the 1993 Round Table at the Canadian Tax Foundation Conference. In our reply we stated that the fact that the CEE deduction to which a PBC would otherwise be entitled is limited for a particular year under subsection 66.1(2) to the amount of the PBC’s income for that year, will not, in and by itself, result in the application of the provisions of subsection 66(12.71). The fact that the corporation is a non-resident corporation does not alter our interpretation.
We trust our comments will be of assistance to you.
Yours truly,
for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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