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: Does the area defined as the "mine site" in the draft trust agreement meet the definition of "qualifying site" in subsection 211.6(1) of the ITA such that the trust will be a "qualifying environmental trust"?
Reasons: The purpose behind the QET is to provide a taxpayer a method of funding future reclamation costs with respect to a mine. To define the mine site narrowly, such that only the shaft is included does not support the policy of a QET. Thus for QET purposes the area included in the "operation of a mine" includes more than just the shaft and immediate workings.
Re: Advance Income Tax Ruling
This is in reply to your letter of XXXXXXXXXX, in which you requested an advance income tax ruling on behalf of the above-named taxpayers. We also acknowledge receipt of your subsequent submissions.
We understand that, to the best of your knowledge and that of the taxpayers involved, none of the issues involved in the ruling is:
(i) in an earlier return of the taxpayers 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 taxpayers or a related person,
(iii) under objection by the taxpayers or a related person,
(iv) before the courts, or
(v) the subject of a ruling previously considered by the Directorate to the taxpayers or a related person.
"Act" means the Income Tax Act (Canada), R.S.C. 1985, c.1 (5th Supp.), as amended to the date of this letter;
"Corporation A" means XXXXXXXXXX;
"Corporation B" means XXXXXXXXXX;
"Corporation C" means XXXXXXXXXX;
"Corporation D" means XXXXXXXXXX;
"Environmental Laws" means the Province's XXXXXXXXXX;
"Facility" means the mine, XXXXXXXXXX;
"Group" means Corporation A, Corporation B, Corporation C and Corporation D;
"Minister" means the Minister of the Environment for the Province of XXXXXXXXXX;
"Partners" means Corporation A, Corporation C and Corporation D;
"Partnership" means the XXXXXXXXXX;
"Province" means the Province of XXXXXXXXXX;
"public corporation" has the meaning assigned to this phrase by subsection 89(1) of the Act;
"qualifying environmental trust" has the meaning assigned to this term by subsection 211.6(1) of the Act;
"qualifying site" has the meaning assigned to this term by subsection 211.6(1) of the Act;
"Site" means the Partnership's XXXXXXXXXX mine located XXXXXXXXXX; and
"taxable Canadian corporation" has the meaning assigned to this term by subsection 89(1) of the Act.
Our understanding of the facts, proposed transactions and the purpose of the proposed transactions is as follows:
1. Corporation A is a public company and a taxable Canadian corporation. Corporation A's business number is XXXXXXXXXX.
2. Corporation B is a wholly-owned subsidiary of Corporation A. Corporation B has two wholly-owned subsidiaries: Corporation C and Corporation D. The business number of Corporation C is XXXXXXXXXX. The business number of Corporation D is XXXXXXXXXX.
3. The mailing address of the Group is XXXXXXXXXX. The Group is served by the XXXXXXXXXX Tax Services Office and the XXXXXXXXXX Taxation Centre.
4. Corporation A has XXXXXXXXXX% interest in the Partnership. The remaining partners, Corporation C and Corporation D hold XXXXXXXXXX% interest and a XXXXXXXXXX% interest respectively.
5. The Partnership carries on the business of XXXXXXXXXX in the Province.
6. Corporation A, on behalf of the Partnership, entered into a reclamation trust arrangement with the Province on XXXXXXXXXX with respect to its XXXXXXXXXX mine located in XXXXXXXXXX. The Partnership contributed $XXXXXXXXXX to the reclamation trust in XXXXXXXXXX in accordance with the terms of the trust agreement. The Partnership deducted this amount for income tax purposes in its XXXXXXXXXX taxation year pursuant to paragraph 20(1)(ss) of the Act. The Partnership will not be making any further contributions to this reclamation trust.
7. The reclamation trust described in 6 above, will be dissolved and the amount of funds in the reclamation trust will be distributed to the Partnership.
8. Corporation A will, on behalf of the Partnership, enter into a new trust agreement ("New Trust") with the Province for the sole purpose of funding the reclamation of the Site. The funding is required by the Province's Environmental Laws.
9. The New Trust agreement will contain the following terms:
a. The New Trust, established pursuant to and governed by the Province's Environmental Laws, will be maintained for the sole purpose of funding the reclamation of the Site.
b. The Partnership will settle the trust with a payment.
c. The beneficiaries of the New Trust will be the Partnership and the Province.
d. The trustee will be the XXXXXXXXXX, which is a corporation resident in Canada that is licensed to carry on in Canada the business of offering to the public its services as a trustee.
e. The New Trust will only be authorized to acquire property described in paragraphs (a), (b), (c), (c.1), (d), and (f) of the definition "qualified investments" in section 204 of the Act and which are not "prohibited investments" as that term is defined in subsection 211.6(1) of the Act.
f. The New Trust will not be authorized to borrow money.
g. In the event that the Partnership defaults on its obligations under the plan of reclamation and decommissioning and does not correct such default after being given a XXXXXXXXXX-day notice period, the Minister will be authorized to retain a third party to carry out the work.
h. The Minister will be authorized to direct the Trustee to disburse amounts with respect to work completed in the reclamation or decommissioning of the Site to the Minister, the Partnership or any third party as specified by the Minister.
i. If during the time the Partnership continues to operate the facility, the Partnership undertakes decommissioning, restoration and rehabilitation of the Site the Minister may direct the trustee to pay all or a portion of such costs, as the Minister determines, provided such payment will not unduly deplete the New Trust.
j. The New Trust will exist until all reclamation obligations in respect of the Site have been fulfilled.
10. The Partnership proposes to make contributions to the New Trust of approximately $XXXXXXXXXX in the next several years.
PURPOSE OF PROPOSED TRANSACTIONS
11. The purpose of establishing the New Trust is to provide, in the most economic manner, the funding for the reclamation of the XXXXXXXXXX mining site located at XXXXXXXXXX as required by the Partnership's obligations under the Environmental Laws of the Province.
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, our rulings are as follows:
A. Provided that the New Trust is established and operated in accordance with the proposed terms as described in paragraph 9 above for each taxation year, the New Trust will be a "qualifying environmental trust" as defined in subsection 211.6(1) of the Act.
B. Contributions made in the year to the New Trust by the Partnership will be deductible in computing the income of the Partnership for the particular taxation year pursuant to paragraph 20(1)(ss) of the Act.
C. Upon the dissolution of the existing trust as described in paragraph 7 above, the amounts received in the year by the Partnership will be included in computing the Partnership's income for the particular taxation year pursuant to paragraph 12(1)(z.1) of the Act.
Except as expressly stated, the rulings provided do 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 the arrangement being entered into with the Province creates a valid trust at law; and
(iii) any tax consequences relating to the facts and proposed transactions described herein other than those specifically described in the rulings given above.
The above rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R5 dated May 17, 2002, and are binding on the CRA provided that the proposed transactions are implemented by XXXXXXXXXX.
These rulings are based on the law as it presently reads and do not take into account any proposed amendments to the Act which, if enacted, could have an effect on the rulings provided herein.
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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