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: Reconsideration of whether a particular mine has come into production "in reasonable commercial quantities". Also whether expenses to bring a new ore zone into production will qualify as CEE as related to a "new mine" or be precluded as related to an extension of a mine that has come into production in reasonable commercial quantities.
Position: The mine in question previously came into production "in reasonable commercial quantities" and has not lost the characteristics of a mine since it was last shutdown. In addition, a proposed development program to access and mine a particular ore zone would constitute an extension of the existing mine rather than a "new" mine.
Reasons: Based upon the facts of the situation and a written opinion received from Natural Resources Canada.
2003-001803
XXXXXXXXXX A.A. Cameron
(613) 347-1361
November 5, 2003
Dear Sir:
Re: XXXXXXXXXX (the "Company")
We are writing in response to your letter dated May 9, 2003 requesting consideration of certain issues raised on behalf of the Company with regard to a mining property referred to as the "XXXXXXXXXX property", located in XXXXXXXXXX.
In particular, you requested consideration of whether:
(a) taking into account the information you have provided on behalf of the Company, we would remain of the view that the mine at the XXXXXXXXXX property would constitute a mine which "has come into production in reasonable commercial quantities" for purposes of subparagraph (f)(vi) to the definition of "Canadian exploration expense" ("CEE") contained in subsection 66.1(6) of the Income Tax Act (the "Act"); and
(b) if a new ore zone (referred to as "XXXXXXXXXX") is developed in the manner contemplated in a feasibility study prepared for the Company, such development would be considered a "new mine" for purposes of paragraph (g) to the above definition of CEE.
Background
XXXXXXXXXX.
The mine at the XXXXXXXXXX property produced ore in XXXXXXXXXX consecutive years from XXXXXXXXXX. In XXXXXXXXXX the mine achieved an average daily production rate of XXXXXXXXXX tonnes per day. XXXXXXXXXX.
The Company plans to resume production of ore from the XXXXXXXXXX existing ore zones and to extend the mine workings to reach XXXXXXXXXX. The feasibility study referred to above envisions that the ore from XXXXXXXXXX would be hoisted to the surface using the existing shaft, crusher, loading pocket, hoist and head frame. The miners would access their working faces via the existing shaft. In addition, the existing dry, mill and mine offices would be part of the surface infrastructure that would be necessary for the Company to carry out the planned operations.
After reviewing the situation regarding the mine at the XXXXXXXXXX property, including consideration of the information submitted with your letter, Natural Resources Canada has indicated it is their view that:
i) the mine came into production in reasonable commercial quantities in XXXXXXXXXX;
ii) since being closed in XXXXXXXXXX the mine has been kept on care and maintenance and has not lost the characteristics of a mine; and
iii) the development program envisioned in the above feasibility study to access and mine XXXXXXXXXX would constitute an extension of the existing mine at the XXXXXXXXXX property.
In light of the above, in our view:
(a) it remains appropriate to view the mine at the XXXXXXXXXX property as a mine which "has come into production in reasonable commercial quantities" for purposes of subparagraph (f)(vi) to the above definition of CEE; and
(b) if XXXXXXXXXX is developed in the manner contemplated in the above-mentioned feasibility study, the expenses of such a development program would relate to an extension of a mine that "has come into production in reasonable commercial quantities" for purposes of subparagraph (f)(vi) to the above definition of CEE and would not relate to a "new mine" for purposes of paragraph (g) to that definition.
Consequently, expenditures related to the planned development program at XXXXXXXXXX will not qualify as CEE.
If you have any questions concerning this matter, please contact Mr. Alan Cameron at (613) 347-1361.
Yours truly,
for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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