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.
QUESTION
2. An integrated mining corporation produces certain nickel products to the prime metal stage which are sold to third parties. These profits qualify for inclusion in "resource profits" under subsection 1204(1) of the Income Tax Regulations.
Due to market saturation of nickel products at the prime metal stage and since the corporation has excess production and processing capacity, nickel products at the prime metal stage (the intermediate products) are debased to a stage that is beyond the prime metal stage (the final product). The selling price of the final product is less than the selling price of the intermediate products.
Debasing is the process whereby a higher purity product is processed or manufactured into a lower purity product having somewhat different properties, for example, the manufacturing and processing of carbonyl nickel pellets containing more than 99.97% nickel into utility nickel shot containing 98.99% to 99.14% nickel.
Should resource profits from the intermediate products be computed by reference to the realized price on the final product or the higher unrealized price of the intermediate products?
ANSWER
2. It is our view that Regulation 1204(1) permits the computation of resource profits by reference to the unrealized price of the intermediate product. This price would be determined using valuation principles, but such price cannot exceed the realized price on direct sales of the intermediate product.
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