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.
Principal Issues: 1. Does Potash mining (in particular extraction & processing) qualify for the Sask. M&P ITC?
Position: 1. No
Reasons: extraction of a mineral from a mineral resource does not qualify nor does processing of an "ore" that is not beyond the prime metal state equivalent; prime metal state equivalent for Potash is generally marketable potash.
2010-035598
XXXXXXXXXX Lena Holloway
(613) 946-3553
March 09, 2010
Dear XXXXXXXXXX :
Re: Saskatchewan Manufacturing And Processing Investment Tax Credit
We are writing in reply to your e-mail enquiry concerning the eligibility of property used in the mining and production of potash for the Saskatchewan Manufacturing and Processing ("M&P") Investment Tax Credit ("ITC"). Specifically you had asked whether potash extraction qualified as manufacturing and processing and if potash processing qualified as manufacturing and processing. Your e-mail states that potash comes from the mineral sylvite and that in your opinion it is a (non-metallic) mineral resource. You have also stated that you do not believe that potash is an "ore".
Our comments
T2 Schedule 402 (E) (available on our website www.cra-arc.gc.ca) is used by a corporation in order to claim the Saskatchewan M&P ITC on qualified property. As explained on this form "manufacturing or processing" is defined in subsection 125.1(3) of the federal Income Tax Act (the "Act") and includes qualified activities as defined by section 5202 of the federal Income Tax Regulations. The federal definition of manufacturing or processing is altered for the Saskatchewan M&P ITC by excluding paragraph (h).
The definition of "manufacturing or processing" found in subsection 125.1(3) of the Act is very specific as to what activities are not considered to be manufacturing or processing for purposes of the Act. The relevant paragraphs that will apply to a potash mine, exclude the following activities from being considered as "manufacturing or processing":
"(e) extracting minerals from a mineral resource, and (f) processing (i) ore (other than iron ore or tar sands ore) from a mineral resource located in Canada to any stage that is not beyond the prime metal stage or its equivalent."
It is our understanding that in Saskatchewan, the potash is largely comprised of sylvite. By virtue of subparagraph (d)(ii) of the definition of "mineral resource" in subsection 248(1) of the Act, a mineral resource includes a mineral deposit from which the principal mineral extracted is sylvite. In our opinion, the extraction of minerals from a mineral resource ceases when the minerals are removed from the ground whereas processing activities occur after the extraction of the ore from the ground.
We do not agree with your statement that potash is not an ore. As the term "ore" itself is not defined in the Act it must be given its ordinary meaning.
A review of various dictionaries have given the meaning of the word 'ore'as follows:
McGraw Hill Dictionary of Scientific and Technical Terms (4th edition):
ore [geol] 1. The naturally occurring material from which economically valuable minerals can be extracted. 2. Specifically, a natural mineral compound of the elements, of which one element at least is a metal. 3. More loosely, all metalliferous rock, though it contains the metal in a free state. 4. Occasionally, a compound of nonmetallic substances, as sulphur ore."
Webster's Third New International Dictionary:
"Ore 1a: a natural or native mineral that can usu. be profitably mined and treated for the extraction of any of its constituents (iron ore) ( copper ore). b: a source from which valuable matter is extracted c: an unrefined condition or material 2: precious metal."
The Random House Dictionary of the English Language (2nd edition):
"ore n. 1. a metal-bearing mineral or rock, or a native metal, that can be mined at a profit. 2. a mineral or natural product serving as a source of some nonmetallic substance, as sulphur."
McGraw Hill Encyclopedia of Science and Technology:
"Ore and Mineral Deposits. Ore deposits are naturally occurring geologic bodies that may be worked for one or more metals. The metals may be present as native elements, or, more commonly, as oxides, sulphides, sulphates, silicates, or some other compounds. The term ore is often used loosely to include such nonmetallic minerals as fluorite and gypsum."
In addition, a webpage entitled "Potash Ore" describing the province of Saskatchewan's Provincial Mineral Emblem is available on their website. This site provides the following details: "Potash deposits form part of the Middle Devonian Prairie Evaporite formation, a sequence of rocks that was deposited during the evaporation of a large inland sea. The potash horizons underlie the province at depths between 1 and 1.5 kilometers, in a broad band stretching between Estevan and Yorkton to Maple Creek and Lloydminister. Reserves are sufficient to last over 600 years." (see www.er.gov.sk.ca/adx/.../adxGetMedia.aspx?...PotashOre.pdf)
Given the preceding definitions, it is our view that potash is an "ore" and therefore processing of this ore that is not beyond the prime metal stage, or its equivalent would not be considered to be "manufacturing or processing" by virtue of paragraph (f) of that definition in subsection 125.1(3).
It is our opinion that "the prime metal stage, or its equivalent" for potash would generally be marketable potash which meets specifications on grain size (finer grades vs. coarser grades) and contains a minimum of 60% K2O (potassium oxide) equivalent.
Therefore, given the exclusions found in subsection 125.1(3), the extraction of potash and the processing of this ore to any stage that is not beyond the prime metal stage or its equivalent, as described above, would not qualify as manufacturing or processing for the purposes of claiming the Saskatchewan M&P ITC on property used in those activities.
We trust the above comments are of assistance. These comments are provided in accordance with the practice outlined in paragraph 22 of Information Circular 70-6R5.
Yours truly,
for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
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