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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues: Whether Part XII.6 tax deductible in computing resource profits.
Position: Yes.
Reasons: Part XII.6 tax would be considered to be an expense described in paragraph 1204(1.1)(a).
January 21, 2002
Quebec Tax Services Office HEADQUARTERS
Audit Division Reorganizations and
Mr. Richard Cloutier Resources Division
Mining Industry Specialist David Shugar
(613) 957-2134
2001-011375
Resource Allowance - Part XII.6 Tax
This is in reply to your correspondence of December 5, 2001, wherein you requested our comments on whether Part XII.6 tax would be deducted in computing resource profits under subsection 1204(1.1) of the Income Tax Regulations (the "Regulations"). Your view is that the payment would be deducted in computing resource profits under paragraph 1204(1)(f) of the Regulations, or failing that, under subsection 1204(1.1) of the Regulations. All references are to the Regulations unless otherwise stated.
In our view, paragraph 1204(1)(f) may not be broad enough to consider Part XII.6 tax to be reasonably regarded as applicable to the sources of income referred to in that paragraph.
However, under paragraph 1204(1.1)(a), the scope of deductions in computing resource profits is intentionally broad - such deductions include all amounts deducted in computing the taxpayer's income for the purpose of Part I of the Act. The preamble at paragraph 1204(1.1)(a) requires that all amounts deducted in computing the taxpayer's income for the year are deducted in computing resource profits. The only amounts excluded from being deducted by virtue of the preamble, are those described in subparagraphs 1204(1.1)(a)(i) to (v). Unless the Part XII.6 tax is an amount described in one of those subparagraphs, it would be deducted in computing resource profits.
The exceptions provided under subparagraphs 1204(1.1)(a)(i) to (iii) do not apply to Part XII.6 tax.
Under subparagraph 1204(1.1)(a)(iv), an amount deducted in computing a taxpayer's income reduces the taxpayer's resource profits, unless it was deducted from business income or another source of income that does not include a resource activity. We cannot conceive of a situation in which Part XII.6 tax would be an amount deductible in computing income from a business or other source that does not include a resource activity, therefore subparagraph 1204(1.1)(a)(iv) could not be relied on by a taxpayer to exclude Part XII.6 tax from being deducted in computing resource profits.
To meet the exemption from deduction under subparagraph 1204(1.1)(a)(v), there is a requirement that the amount "(A) relates to an activity ... that is not a resource activity of the taxpayer ... that is [a described activity], and (B) does not relate to a resource activity of the taxpayer." Thus, to the extent an amount can be allocated on a reasonable basis to one of the non-resource activities described in subclause 1204(1.1)(a)(v)(A)(II), and does not relate to a resource activity, the amount would not be deducted in computing resource profits.
In our view, Part XII.6 tax would not meet any of the requirements in subclause 1204(1.1)(a)(v)(A)(II). The tax would not be related to an activity that is "1. the production, processing, manufacturing, distribution, marketing, transportation or sale of any property," "2. carried on for the purpose of earning income from property," or "3. the rendering of a service... ." Part XII.6 tax, therefore, does not satisfy the conditions of subparagraph 1204(1.1)(a)(v) and would not be exempt from being deducted in computing resource profits.
Therefore, Part XII.6 tax would be deducted in computing resource profits under paragraph 1204(1.1)(a) because it does not meet any of the exceptions described in the subparagraphs therein.
for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Legislation Branch
4
- -
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2002
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2002