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: Whether a mine which may be established would be a "new mine" for purposes of paragraph (g) to the definition of CEE.
Position: A mine established in accordance with the proposed transactions described herein would be a "new mine" for purposes of paragraph (g) to the definition of CEE.
Reasons: Based upon the facts, proposed transactions and a written opinion from Natural Resources Canada.
XXXXXXXXXX
2011-040898
XXXXXXXXXX, 2012
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling
XXXXXXXXXX
We are writing in response to your letter of XXXXXXXXXX wherein you requested an advance income tax ruling on behalf of the above-named taxpayer. We also acknowledge the additional information you provided in your letter of XXXXXXXXXX.
We understand that, to the best of your knowledge and that of the taxpayers named above, none of the issues involved in the ruling request are:
(i) involved in an earlier return of the taxpayer or a related person;
(ii) being considered by a tax services office or taxation centre in connection with a previously filed tax return of the taxpayer or a related person;
(iii) under objection by the taxpayer or a related person;
(iv) before the courts; or
(v) the subject of a ruling previously issued by the Income Tax Rulings Directorate involving the taxpayer or a related person.
DEFINITIONS
In this letter, unless otherwise expressly stated, the following terms have the meanings specified:
(a) “Act” means the Income Tax Act (Canada), RSC 1985, c.1 (5th Supp.), as amended to the date of this letter;
(b) "Canadian development expense" has the meaning assigned to that term by subsection 66.2(5) of the Act;
(c) “Canadian exploration expense” (“CEE”) has the meaning assigned to that term by subsection 66.1(6) of the Act;
(d) “Canadian resource property” has the meaning assigned to that term by subsection 66(15) of the Act;
(e) “C Mine” is XXXXXXXXXX operated by Subco1 and located XXXXXXXXXX;
(f) “Corporation” means XXXXXXXXXX;
(g) “CRA” means the Canada Revenue Agency;
(h) “XXXXXXXXXX Deposit” is located on the XXXXXXXXXX Property and is a “mineral resource” by virtue of paragraph (a) of the definition of mineral resource that refers to a base or precious metal deposit;
(i) “XXXXXXXXXX Mine” means the mine in the XXXXXXXXXX Deposit as described in this letter;
(j) “XXXXXXXXXX Property” means the XXXXXXXXXX property located at XXXXXXXXXX. The XXXXXXXXXX Property includes XXXXXXXXXX mineral XXXXXXXXXX covering approximately XXXXXXXXXX and XXXXXXXXXX mineral XXXXXXXXXX covering XXXXXXXXXX. Subco1 holds XXXXXXXXXX% of the mineral rights and mineral access rights;
(k) “mineral resource” has the meaning assigned to that term by subsection 248(1) of the Act;
(l) “Paragraph” refers to a numbered paragraph in this letter;
(m) “principal-business corporation” has the meaning assigned to that term by subsection 66(15) of the Act;
(n) “proposed transactions” means the transactions described in Paragraphs 13 through 27 below;
(o) “public corporation” has the meaning assigned to that term by subsection 89(1) of the Act;
“Subco1” means XXXXXXXXXX a wholly-owned subsidiary of the Corporation;
(p) “Subco2” means XXXXXXXXXX, a wholly-owned subsidiary of Subco1; and
(q) “taxable Canadian corporation” has the meaning assigned to that term by subsection 89(1) of the Act.
Unless otherwise indicated, all references to monetary amounts are in Canadian dollars.
Our understanding of the facts, proposed transactions and purpose of the proposed transactions is as follows:
FACTS
1. The Corporation was formed in XXXXXXXXXX as a result of an amalgamation pursuant to the XXXXXXXXXX Business Corporations Act. The Corporation is a taxable Canadian corporation, a public corporation and a principal-business corporation engaged in the business of XXXXXXXXXX. The Corporation’s fiscal year ends on XXXXXXXXXX and its business number is XXXXXXXXXX. The head office is located at XXXXXXXXXX. The Corporation currently files its corporate income tax returns at the XXXXXXXXXX Taxation Centre and its tax affairs are administered by the XXXXXXXXXX Tax Services Office.
2. Subco1 is a taxable Canadian corporation and a principal-business corporation engaged in the business of XXXXXXXXXX. Subco1’s fiscal year ends on XXXXXXXXXX and its business number is XXXXXXXXXX. The head office is located at XXXXXXXXXX. Subco1 files its corporate income tax returns at the XXXXXXXXXX Taxation Centre and its tax affairs are administered by the XXXXXXXXXX Tax Services Office.
3. XXXXXXXXXX.
4. Subco2 is a taxable Canadian corporation and a wholly-owned subsidiary of Subco1. The fiscal year end is XXXXXXXXXX and the business number is XXXXXXXXXX. Subco2’s head office is located at XXXXXXXXXX. Subco2 files its corporate income tax returns at the XXXXXXXXXX Taxation Centre and its tax affairs are administered by the XXXXXXXXXX Tax Services Office. Subco2 is an agent for Subco1. All of its XXXXXXXXXX properties are held as agent for Subco1 and all of its XXXXXXXXXX activities are conducted on behalf of Subco1.
5. Subco1 holds a XXXXXXXXXX% interest in the C Mine, in which commercial production commenced for income tax purposes on XXXXXXXXXX. Production from the C Mine is made up of XXXXXXXXXX ore as well as a small amount of XXXXXXXXXX ore. The surface facilities at the C Mine include XXXXXXXXXX. The mine currently produces approximately XXXXXXXXXX tonnes per day (“tpd”) of ore.
6. Operations at the C Mine were suspended in XXXXXXXXXX due to depressed base metal prices related to the global economic downturn, but re-started in XXXXXXXXXX. The C Mine is expected to be depleted sometime during the XXXXXXXXXX and then in due course the surface facilities, such as XXXXXXXXXX that are not related to the XXXXXXXXXX Mine.
7. The XXXXXXXXXX Deposit was discovered in early XXXXXXXXXX and the discovery exploration drill holes intersected primarily XXXXXXXXXX-rich mineralization. XXXXXXXXXX activity increased and by the end of XXXXXXXXXX, several base metal zones were discovered as well as XXXXXXXXXX-bearing horizons. XXXXXXXXXX.
8. In XXXXXXXXXX, the Corporation announced the development of the XXXXXXXXXX Mine site to be located about XXXXXXXXXX of the C Mine. In XXXXXXXXXX, the Corporation’s Board of Directors approved expenditures of $XXXXXXXXXX towards the XXXXXXXXXX Mine development, which included XXXXXXXXXX.
9. The XXXXXXXXXX Mine Access Ramp was planned to begin from an existing ramp that originates on the surface and goes underground into the current workings in the C Mine (the “C Mine Ramp”). The XXXXXXXXXX Mine Access Ramp would provide early access to the XXXXXXXXXX Deposit, provide diamond drill platforms to access and to facilitate exploration of XXXXXXXXXX bearing zones to the XXXXXXXXXX of the XXXXXXXXXX Deposit, and establish the first phase of ventilation required for further underground excavation.
10. In XXXXXXXXXX, the Corporation’s Board of Directors approved expenditures of $XXXXXXXXXX for the XXXXXXXXXX Mine development (including the $XXXXXXXXXX previously approved). During XXXXXXXXXX, additional funds were approved, bringing the total approved expenditures to $XXXXXXXXXX. The additional funds in XXXXXXXXXX primarily reflect approval in XXXXXXXXXX to build a new concentrator. The development of the XXXXXXXXXX Mine was put on a fast track schedule so that it could be brought to full production by late-XXXXXXXXXX. At this time, the opportunity for improving the XXXXXXXXXX recovery by a new XXXXXXXXXX plant is an opportunity for future consideration.
11. Construction of the XXXXXXXXXX Mine Access Ramp began in XXXXXXXXXX and was completed in XXXXXXXXXX. The ramp is approximately XXXXXXXXXX metres long, driven in a XXXXXXXXXX direction from the C Mine. The XXXXXXXXXX Mine Access Ramp originates from the C Mine Ramp at a depth of approximately XXXXXXXXXX along the C Mine Ramp, approximately XXXXXXXXXX from the C Mine. The XXXXXXXXXX Mine Access Ramp reached the target depth of approximately XXXXXXXXXX at about a XXXXXXXXXX% grade.
12. When the XXXXXXXXXX Mine is completed in XXXXXXXXXX, the XXXXXXXXXX Mine Access Ramp from the XXXXXXXXXX level in the XXXXXXXXXX Mine to the XXXXXXXXXX level on the C Mine Ramp, and the C Mine Ramp from the XXXXXXXXXX level to the surface will be maintained as a secondary egress from the XXXXXXXXXX Mine and will not be used for bringing ore from the XXXXXXXXXX Mine up to the surface. When mining ceases at the C Mine, the portion of the C Mine Ramp from the XXXXXXXXXX level down to the C Mine underground workings will not be used, but either sealed or maintained for drainage so that water does not seep into the XXXXXXXXXX Mine Access Ramp.
PROPOSED TRANSACTIONS
13. Once completed, the XXXXXXXXXX Mine will be comprised of XXXXXXXXXX.
14. Access to the XXXXXXXXXX Mine will be by means of XXXXXXXXXX (the “Production Shaft”) with the shaft bottom at XXXXXXXXXX below surface. The Production Shaft will include stations at the XXXXXXXXXX, and will also be used to provide the fresh air required for ongoing underground mining operations. It is anticipated that combined XXXXXXXXXX production will reach between XXXXXXXXXX tpd in XXXXXXXXXX, using a new XXXXXXXXXX tpd concentrator to be constructed on the surface at the XXXXXXXXXX Mine site. Construction of the Production Shaft commenced in XXXXXXXXXX and is scheduled to be operational in late-XXXXXXXXXX to coincide with the completion of the new concentrator.
15. The construction of a XXXXXXXXXX (“Ventilation Shaft”) was completed in mid-XXXXXXXXXX, with the shaft bottom at approximately XXXXXXXXXX metres and a diameter of approximately XXXXXXXXXX metres. This allows a crew to begin limited production on the XXXXXXXXXX level to achieve approximately XXXXXXXXXX tpd until the Production Shaft and ore handling system is operational in XXXXXXXXXX.
16. After the Ventilation Shaft is complete and until the time when the Production Shaft becomes operational, waste materials and pre-production XXXXXXXXXX ore will be hoisted to the surface through the Ventilation Shaft. When the Production Shaft is operational, the temporary hoisting facilities and equipment will be removed from the Ventilation Shaft and an exhaust fan and related equipment will be installed so that it is used exclusively for exhausting air from the underground XXXXXXXXXX Mine.
17. The XXXXXXXXXX Mine Access Ramp will not be used to haul production ore to surface. Ore will be brought to surface solely by hoisting through the Ventilation Shaft; however, there will be waste material in addition to ore. If the waste material exceeds the amount that can be hoisted to surface through the Ventilation Shaft for disposal, this excess waste material may be trucked to surface for disposal using the XXXXXXXXXX Mine Access Ramp. Such use, however, would only occur if the capacity of the hoisting facility is exceeded, as the distance to the surface is approximately XXXXXXXXXX kilometres (one way) and it would take about XXXXXXXXXX hours for a return trip for a single XXXXXXXXXX tonne load.
18. When the Production Shaft becomes operational, the underground workforce and supplies will be transported underground via the cage to main level shaft stations underground. Until the Production Shaft is operational, it is expected that the mining crew will have to be brought into the XXXXXXXXXX Mine using the XXXXXXXXXX Mine Access Ramp.
19. The XXXXXXXXXX Mine will begin production at or near a steady production target of XXXXXXXXXX tpd, and up to XXXXXXXXXX tpd, starting in early XXXXXXXXXX. This rate of production will continue through to the end of XXXXXXXXXX. Operations will be carried out on the basis of XXXXXXXXXX-hour working shifts per day. Operations at the new mine and new mill will be at XXXXXXXXXX operating days per year.
20. While new mining equipment will be acquired for the XXXXXXXXXX Mine, some equipment with remaining value may be transferred from the decommissioned C Mine to be used at the XXXXXXXXXX Mine. The C Mine surface facilities will not be used at the new XXXXXXXXXX Mine. The permit for the construction of the new office/dry facility at the XXXXXXXXXX Mine site is expected to be received later in XXXXXXXXXX. This new office/dry facility will be constructed in XXXXXXXXXX. In the meantime, the existing C Mine office/dry facility would continue to be used and then decommissioned after the new office/dry facility is completed and commissioned, or used for mining exploration or other mining activities that are not related to the XXXXXXXXXX Mine.
21. XXXXXXXXXX new hydraulic power rockbreakers will be acquired for the XXXXXXXXXX Mine and placed at the XXXXXXXXXX metre level to reduce ore size as necessary. Ore will be discharged via feeders to a load out conveyor and hoisted using XXXXXXXXXX ton skips. At surface, ore will be discharged to an XXXXXXXXXX tonne bin and will be transported from the XXXXXXXXXX tonne bin to a crushing plant via conveyor belt prior to entering the new concentrator for processing.
22. A new power substation will be constructed for the XXXXXXXXXX Mine and a new XXXXXXXXXX kV power line will be constructed to the XXXXXXXXXX site adjacent to the mine access road. There will be new cables installed in the Production Shaft to provide power to underground workings. New electrical rooms on surface and underground will be established to house the switches, transformers, motor control centres and communication equipment.
23. The XXXXXXXXXX Mine is connected to the XXXXXXXXXX telephone and data services through a new separate communications tower and dish system at the XXXXXXXXXX Mine. The mine site will be equipped with a new ring fibre system with new hubs in each building. A new fibre optic cable will be installed in the Production Shaft to permit the future transmission of data, voice and video signals from underground to surface. There will be new telephones and communication systems and new underground emergency mine warning systems for the XXXXXXXXXX Mine.
24. It is estimated that XXXXXXXXXX l/s (XXXXXXXXXX US gpm) of process water will be required for the office/dry facility, shop, hoist house and the underground operation. Process water will be drawn through the existing pump stations located at XXXXXXXXXX that are currently supplying process water to the C Mine. Each pump station has a capacity of supplying XXXXXXXXXX l/s (XXXXXXXXXX US gpm) so it will not be necessary to construct new pump stations for XXXXXXXXXX Mine operations as the C Mine will cease operating in XXXXXXXXXX. Water will be pumped from either pump station through an existing shallow buried XXXXXXXXXX mm (XXXXXXXXXX inch) insulated pipe to a booster pump station to be located on the XXXXXXXXXX Mine access road near the intersection of XXXXXXXXXX. From the booster pump station the process water will be pumped to the main pump station located at the XXXXXXXXXX Mine site via a new shallow buried XXXXXXXXXX mm insulated pipe located adjacent to the XXXXXXXXXX Mine site access road. Dedicated vertical turbine pumps will pump the process water, treated water and fire water through shallow buried insulated dedicated pipelines to the various facilities. The booster pump station and new water treatment plant have been constructed solely for the XXXXXXXXXX Mine. New pipelines from the XXXXXXXXXX to the new booster pump station will be installed and commissioned and then the pipelines that were used for the C Mine will be decommissioned.
25. Tailings will be disposed of at the existing tailings pond. The existing tailings impoundment area dams will need to be raised by XXXXXXXXXX metres to accommodate the XXXXXXXXXX Mine and mill tailings. To allow the raising of the existing dam, an approximate XXXXXXXXXX section of XXXXXXXXXX will need to be relocated.
26. In XXXXXXXXXX, the Board of Directors approved the construction of a new concentrator (the “XXXXXXXXXX Mill”) to be constructed at the new XXXXXXXXXX Mine site with new grinding, flotation, reagents, thickening and filtration circuits. There will be a new XXXXXXXXXX circuit and a separate new XXXXXXXXXX circuit to process up to XXXXXXXXXX tpd of XXXXXXXXXX concentrate. Construction is scheduled for completion in late-XXXXXXXXXX.
27. XXXXXXXXXX concentrate from the XXXXXXXXXX Mine will be transported by truck from the new XXXXXXXXXX Mill to XXXXXXXXXX for further processing or transported to third party smelters.
PURPOSE OF THE PROPOSED TRANSACTIONS
The Proposed Transactions are being undertaken for the purpose of developing a new XXXXXXXXXX mine at the XXXXXXXXXX Deposit using new underground mining equipment, a new production shaft, new ventilation raise and a new XXXXXXXXXX concentrator with potential for expansion for XXXXXXXXXX in the future in order to produce and process ore from the XXXXXXXXXX Deposit at the new XXXXXXXXXX Mine.
RULING GIVEN
Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions and purpose of the proposed transactions, and provided further that the proposed transactions are carried out as described above, we confirm the following:
A. The XXXXXXXXXX Mine described in this letter will be considered to be a new mine in a mineral resource in Canada, and any expense incurred by Subco1 after the date of this letter, for the purpose of bringing the XXXXXXXXXX Mine into production in reasonable commercial quantities, and incurred before the XXXXXXXXXX Mine comes into production in such quantities, including expenses for clearing, removing overburden, stripping, sinking the new Ventilation Shaft, sinking the new Production Shaft, and completing the XXXXXXXXXX Mine Access Ramp, but not including any expense that results in revenue or can reasonably be expected to result in revenue earned before the new mine comes into production in reasonable commercial quantities, except to the extent that the total of all such expenses exceeds the total of those revenues, will be CEE of Subco1 within the meaning of paragraph (g) of the definition contained in subsection 66.1(6) of the Act, provided the expense does not constitute the cost, or any part of the cost to Subco1 of any depreciable property or any Canadian resource property.
Except as expressly stated, the ruling provided does not imply acceptance, approval or confirmation of any income tax implications of the Facts or Proposed Transactions. In particular, nothing in this letter should be interpreted as confirming either expressly or implicitly:
(i) the reasonableness of any expenditure referred to in this letter;
(ii) whether any particular expense incurred by Subco1 in respect of the XXXXXXXXXX Mine will qualify as CEE, or whether any particular expense not considered to be CEE will qualify as a Canadian development expense;
(iii) whether the Corporation or Subco1 meets the definition of a principal-business corporation; and
(iv) any tax consequences relating to the Facts and Proposed Transactions described herein other than those specifically described in the ruling given above.
The above ruling is given subject to the limitations and qualifications set out in Information Circular 70-6R5 dated May 17, 2002, and is binding on the CRA provided that Subco1 has commenced implementing the Proposed Transactions by XXXXXXXXXX.
This ruling is based on the law as it presently reads and does not take into account any proposed amendments to the Act which, if enacted, could have an effect on the ruling provided herein.
Yours truly,
XXXXXXXXXX
Manager
Resources Section
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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