21 November 2003 External T.I. 2003-0043505 - CEE - Exploration for Uranium

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 expenses in respect of exploring for uranium could qualify for renunciation for flow-through share purposes.

Position: Potentially.

Reasons: Review of the facts of the situation in light of the relevant legislative provisions. Uranium is a metal that is considered to be a base metal. A uranium deposit would constitute a "mineral resource" for purposes of the legislation under consideration.

2003-004350
XXXXXXXXXX A. A. Cameron
(613) 347-1361
November 21, 2003

Dear XXXXXXXXXX:

Re: Exploration for Uranium

This is in reply to your letter of October 10, 2003 in which you ask for our views as to whether expenses relating to the exploration for uranium would qualify for "flow-through treatment".

Our Comments

The provisions of section 66 of the Income Tax Act (the "Act") provide that, in specified circumstances, a "principal-business corporation" may renounce, in respect of a "flow-through share" in its capital stock, amounts determined with reference to certain exploration expenses it incurs [the terms in quotations having the meanings assigned in subsection 66(15) of the Act]. One of the requirements is that such exploration expenses be incurred by the corporation for the purpose of determining the existence, location, extent, or quality of either "an accumulation of petroleum or natural gas...in Canada" or "a mineral resource in Canada".

The term "mineral resource" has the meaning assigned in subsection 248(1) of the Act and is defined to mean certain specified mineral deposits which include a base or precious metal deposit. Uranium is a metal that is considered to be a base metal. As such, a uranium deposit would constitute a "mineral resource" within the above meaning of that term. Therefore, exploration for uranium would be exploration relating to a mineral resource.

As such, a principal-business corporation may be able to renounce, to the holder of a flow-through share, amounts in respect of certain expenses it incurs relating to the exploration for uranium. However, the appropriate treatment for purposes of the Act of a particular expense incurred by a taxpayer relating to the exploration for uranium would be a question of fact to be determined from a review of all of the circumstances relevant to that taxpayer.

The above comments are given in accordance with the practice referred to in paragraph 22 of Information Circular 70-6R5, dated May 17, 2002, issued by the Canada Customs and Revenue Agency (the "Agency"). As stated in that paragraph, written opinions are not advance income tax rulings and, accordingly, are not binding on the Agency.

Please contact the writer if you have any questions regarding the above comments.

Yours truly,

for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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