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.
April 30, 1985
HEAD OFFICE Resource Industries Section D. Lanos (613) 993-6201
RE: Reg. 1205(1) (b) - Class 10(k) Tailings Pipes & Power Distribution Systems
This is in reply to your memorandum dated December 21, 1984 concerning the classification of the following assets used by XXXX in its mining operations in the above taxation years:
1) tailings pipes used to transport waste products from the smelter and refinery to the tailings pond; and
2) power distribution systems located at the mine site including power lines, underground cables, electrical substations, transformers, generators, circuit brakers and ancillary electrics.
Our views are as follows:
Tailings Pipes:
Tailings are, by definition, the material rejected from a mill after the recoverable valuable minerals have been extracted, presumably in the course of their processing. Your current audit has confirmed that the tailings pipes are used to transport waste products (the tailings) from the smelter and refinery to the tailings pond.
XXXX
It has been our view since that meeting that such tailings equipment, including tailings pipes, forms part of the processing assets of a mine. Accordingly, it qualifies as Class 10(k) property and can be properly included in the earned depletion base pursuant to paragraph 1205(1)(b) of the Income Tax Regulations.
At this point, we can see no justification for reversing the above position. As to your reference to XXXX letter of March 27, 1980, that letter simply confirms the point that XXXX.
If anything, the above letter is more consistent with our amended position on tailings equipment, inasmuch as it recognizes that the transportation of ore to the sinter plant can form part of the extraction process just as we now recognize that the transportation of tailings to a tailings pond can form part of the "processing" of ore after extraction from a mineral resource.
As to C.J. Muirhead's memorandum of August 27, 1980 to Edmonton D.O., she simply expresses the view at page 3 that support activities are those activities that are not directly associated with the extraction and ore processing activities. Again, there is no conflict with our later amended position on tailings equipment since that position recognizes that the transportation of tailings via tailings equipment is directly associated with processing activities.
Power Distribution Systems
The power distribution systems in question are used by XXXX at its various mine sites to transform primary hydro-electric power to secondary voltage and distribute the reduced voltage to powerhouses at the mines, smelter and refinery.
It is XXXX position that these systems are essential to providing the power required to operate the extraction and processing facilities and, accordingly, form an integral part of them.
In our opinion, the above power distribution systems, with the exception of the power lines described in 3 (b) of your memorandum, fall squarely within Class 10(r) by virtue of meeting the provisions of subsection 1102(9) of the Regulations, assuming the "80% use" test in that regulation is otherwise met. In this regard, the comments in the last paragraph of the Assessing Guide, AG: 11-137 are still relevant with the effect that this type of generating or distributing equipment and plant can only qualify for inclusion in Class 10 by coming within the provisions of subsections 1102(8) or (9) of the Regulations.
It is also our opinion that the above-noted power lines clearly fit within the words of Class 10(1) and, in the absence of a more precise classification elsewhere within Class 10 or any other class of Schedule II to the Regulations, power lines must be classified as Class 10(1) assets.
Consequently, neither the power distribution system nor the power lines used for gaining or producing income from a mine would qualify under paragraph 1205 (1) (b) of the Regulations for inclusion in the earned depletion base.
The above position is consistent with the comments in paragraph 1, page 4 of C.J. Muirhead's memo of August 27, 1980 in that the power distribution system and power lines are viewed as being supportive of the mining activity rather than forming an integral part of the extraction and processing assets.
for Director Specialty Corporations Rulings Division Corporate Rulings Directorate Legislation Branch
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