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 CCRA should continue to maintain the current administrative position with respect to paragraph (g) of the definition of "Canadian exploration expense" under subsection 66.1(6) of the Act in light of recent jurisprudence? (CCRA has been taking administrative position that the expression "before the coming into production of the new mine" used in this paragraph could be interpreted as if it were "before the coming into production of the new mine in reasonable commercial quantities".)

Position:

Yes

Reasons:

Finance has been informed of our view on the matter and may consider any corresponding amendments to the Act and Regulations if they are necessary. Before such a decision is made by Finance, we are going to maintain this administrative position until further notice.

National Mining Workshop
Kelowna, BC
May 5-8, 2003

Re: Production v. Production in Reasonable Commercial Quantities

Prepared by Peter Lee
Income Tax Rulings Directorate
May 5, 2003 (#2003-000323)

Introduction

With respect to expenses incurred before May 10, 1985, the predecessor to paragraph (g) of the definition of "Canadian exploration expense" in subsection 66.1(6) of the Act referred to expenses incurred "prior to the commencement of production from the resource in reasonable commercial quantities". The provision was amended by 1985, c.45, subsection 29(8), for expenses incurred after May 9, 1985, to refer to expenses that were incurred for the purpose of bringing a new mine in a mineral resource into production in reasonable commercial quantities and were incurred before the "coming into production of the new mine". CCRA has been taking administrative position that this expression could be interpreted as if it were "coming into production of the new mine in reasonable commercial quantities".

Legislation

Paragraph (g) of the definition of "Canadian exploration expense" in subsection 66.1(6) of the Act refers to

"any expense incurred by the taxpayer... for the purpose of bringing a new mine in a mineral resource in Canada into production in reasonable commercial quantities and incurred before the coming into production of the new mine...."

Issue

The issue is whether CCRA should continue to maintain this administrative position in light of recent jurisprudence?

Our Comments

1. We note that throughout the Act and the Regulations, there are references to both the expressions "came/coming into production" (see definition of "Canadian development expense" in 66.2(5)(d)(i) of the Act, and Class 12(f), Class 28(c)(ii), Class 28(e)(i) to (iii), and Class 41(a)(i) to (iii) of the Regulations) and "came/coming into production in reasonable commercial quantities" (see Class 28(b)(i), definition of "designated overburden removal cost" in 1104(2)(b), 1205(1)(d), definition of "qualified resource" in 1206(1)(a), and 1209(2) of the Regulations).

2. It appears that these two expressions are clear and unambiguous, and that they have two different industrial meanings. By analogy to the case of Shell Canada, 99 DTC 5669 (SCC), it is our view that these two expressions should simply be applied as they are clear and unambiguous.

3. Given our comments in the above, notwithstanding the intent of the expression "coming into production of the new mine" in paragraph (g) of the definition of "Canadian exploration expense" might have been meant to be "coming into production of the new mine in reasonable commercial quantities", the two expressions clearly have separate meanings. Finance has been informed of this view and may consider any corresponding amendments to the Act and Regulations if they are necessary. In the mean time, we will continue our above-noted administrative position of interpreting paragraph (g) of the definition of "Canadian exploration expense" in subsection 66.1(6) of the Act until further notice.