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.
RE: Audit Policy
ISSUES:
Pursuant to a joint exploration corporation (JEC) agreement certain expenditures are renounced to a shareholder corporation. On audit of the JEC, some of these expenditures may be reclassified from Canadian Exploration Expenses (CEE) to Canadian Development Expenses (CDE), or vice versa.
1) Should the shareholder corporation's tax pools be amended to reclassify the renounced expenditures?
2) What is the proper taxation year in which the pools are to be revised
TAX IMPLICATIONS
1) To preclude the JEC from subsequently renouncing the reclassified expenditures of claiming them again as a deduction (double claim).
2) To ensure that the reclassified amounts are included in the correct resource pools of a shareholder corporation and in the proper year.
DEPARTMENT'S POLICY
The Department is prepared to adjust the resource pools of a shareholder corporation in the year(s) the reclassifications were made to the JEC. The adjustments will only be made if both parties either file a waiver for the relevant taxation year(s), or provide an undertaking that the reclassified expenditures will not subsequently be renounced or claimed by the JEC.
In the event the JEC did make a subsequent claim or renouncement, the Department should disallow the prior adjustments made in the hands of a shareholder corporation.
BACKGROUND
The intention of the joint exploration corporation agreement is that the eligible expenditures incurred in the year will be renounced to a shareholder corporation. The Department's position preserves this intention where adjustments become necessary to classifications of expenditures renounced to a shareholder corporation as a result of an audit.
INDEX
(A) Memo dated December 8, 1988, to Specialized Industries from Rulings Directorate Author: G.R. White Reference: Exhibit A
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