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 a patented mining claim is considered a Canadian Resource Property. Determine what is included in the cost for valuation purposes.
Position: The patented mining claim is a Canadian Resource Property. The purchase price of the claim is added to the Canadian Development Expense Pool.
Reasons: Definition of Canadian Resource Property in subsection 66(15) of the ACT. Definition of Canadian Development Expense in subsection 66.2(5) of the ACT.
2002-017425
XXXXXXXXXX Luisa A. Majerus
(613) 946-3558
February 12, 2003
Re: Patented Mining Claims
We are writing in response to your correspondence of September 26, 2002, wherein you requested our views regarding patented mining claims and their treatment for income tax purposes.
The particular situation outlined in your letter appears to relate to a factual one. As explained in Information Circular 70-6R5, it is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an Advance Income Tax Ruling. However, we are prepared to offer the following general comments, which may be of assistance.
You are a prospector under Ontario Licence #XXXXXXXXXX. You have indicated in your letter that you will be purchasing patented mining claims ("claims"). You have asked that we comment on the following issues:
1) The appropriate class for the depreciation of these claims.
2) The appropriate amount to add to the depreciable class.
It is our understanding that patented mining claims entitle the holder to the mineral rights of the property indefinitely, provided the provincial mining land taxes are paid annually. Mineral rights entitle the holder to explore, drill and extract minerals from a deposit. Certain patented mining claims may also provide the holder with the surface rights as well as the mineral rights.
A Canadian resource property ("CRP") is defined in subsection 66(15) of the Income Tax Act ("ACT"). A CRP includes any property of the taxpayer that is
i) any right, licence or privilege to prospect, explore, drill or mine for minerals in a mineral resource in Canada, or
ii) any real property in Canada the principal value of which depends on its mineral resource content (but not including any depreciable property).
Real property generally refers to land and rights issuing out of, annexed to and exercisable within or about land (e.g., a fee simple in land and a profit à prendre in respect of minerals).
A patented mining claim that provides the holder with mineral rights will be considered a CRP if the minerals are located in a mineral resource in Canada.
Mineral resource, as defined in the ACT under subsection 248(1), means:
(a) a base or precious metal deposit,
(b) a coal deposit,
(c) a bituminous sands deposit or oil shale deposit, or
(d) a mineral deposit in respect of which
i. the Minister of Natural Resources has certified that the principal mineral extracted is an industrial mineral contained in a non-bedded deposit,
ii. the principal mineral extracted is ammonite gemstone, calcium chloride, diamond gypsum, halite, kaolin or sylvite, or
iii. the principal mineral extracted is silica that is extracted from sandstone or quartzite.
A CRP is not a depreciable property for the purposes of the ACT. Dispositions of CRPs are specifically excluded from capital gains treatment under the ACT.
However, the cost of a patented mining claim that is a CRP because it is either a right or a real property as described above, is a Canadian Development Expense ("CDE") in accordance with paragraph (e) of the definition of CDE in the ACT.
A CDE is included in the cumulative CDE ("CCDE") pool. A deduction of 30% of the CCDE is available to a taxpayer for a taxation year pursuant to subsection 66.2(2) of the ACT.
The disposition of a CRP results in a reduction to the taxpayer's CCDE. The amount of the reduction to CCDE is equal to the proceeds receivable from the disposition less outlays or expenses made or incurred for the purpose of making the disposition and that are not otherwise deductible for the purposes of Part I of the ACT. If there is a credit balance in CCDE in respect of a taxation year, the balance is included in income.
We trust these comments will be of assistance.
Yours very truly,
for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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