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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
Determination of the equivalent of the prime metal stage (PMS) for gem diamonds. Whether income from a diamond cutting facility processing gem diamonds is included in "resource profits" (REG 1204).
Position:
1. The equivalent of PMS for gem diamonds is stage at which the rough diamonds have been separated from the other minerals, cleaned and valued.
2. Income from a cutting facility processing rough gem diamonds having already reached the above stage would not qualify as "resource profits".
Reasons:
1. Opinion received from Natural Resources Canada.
2. Provisions of paragraph 1204(1)(b) of the Regulations.
960301
XXXXXXXXXX Denise Dalphy
(613) 957-9231
Attention: XXXXXXXXXX
January 26, 1996
Dear Sirs:
Re: Diamond Mining
We are writing in response to your request for the views of Revenue Canada with respect to two issues arising in the context of a feasibility study concerning the establishment of diamond processing plants in the XXXXXXXXXX of Canada.
The issues in question were described in your letter, essentially, as follows:
1.What is considered the prime metal stage in the processing of diamonds?
2.Could revenue from a diamond cutting facility be classified as "resource profits" under subsection 1204(1) of the Income Tax Regulations (the "Regulations") and other applicable sections of the Income Tax Act (the "Act").
As you are aware, we sought assistance on the first issue from Natural Resources Canada, who we understand contacted you for additional information during the course of their review. We have now received their views with regard to this matter.
A mineral deposit in respect of which the principal mineral extracted is diamond will qualify as a "mineral resource" for purposes of the Act and the Regulations pursuant to subparagraph (d)(ii) of the definition of that term contained in subsection 248(1) of the Act.
A taxpayer's income for a taxation year from the processing in Canada of ore, other than iron ore or tar sands ore, from a mineral resource "...to any stage that is not beyond the prime metal stage or its equivalent..." will be included, pursuant to paragraph 1204(1)(b) of the Regulations, in the determination for the purposes of Part XII thereof, of the "resource profits" of the taxpayer for that taxation year.
It is our understanding that diamonds are industrial minerals which unlike metallic ores do not have a prime metal stage. Therefore, for purposes of the above test, the relevant determination in the case of diamonds is that of the "equivalent" of the prime metal stage.
It is also our understanding that diamonds are a commodity having two distinct divisions, namely gems and industrial diamonds, and that the situation with which you are concerned involves processing with regard to gem diamonds. After having consulted with Natural Resources Canada, we are of the view that the equivalent of the prime metal stage for gem diamonds is the stage at which the rough diamonds have been separated from the gangue (other minerals) and then cleaned with acid and valued.
Therefore, in our view, income of a taxpayer from the processing of gem diamonds beyond the stage referred to in the previous paragraph could not qualify for inclusion in that taxpayer's "resource profits" as determined under subsection 1204(1) of the Regulations. As a result, it is also our opinion that the income of a taxpayer from a diamond cutting facility processing rough diamonds, having previously reached the stage referred to above, would not qualify for inclusion in the determination of that taxpayer's "resource profits" under subsection 1204(1) of the Regulations.
The foregoing comments represent our general views with respect to the subject matter. As indicated in paragraph 21 of Information Circular 70-6R2, the above comments do not constitute an income tax ruling and accordingly are not binding on the Department. Our practise is to make this specific disclaimer in all instances in which we provide an opinion.
Yours truly,
for Director
Manufacturing Industries, Partnerships
and Trusts Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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