23 June 1999 External T.I. 9908905 - YUKON MINERAL EXPLORATION TAX CREDIT - PE

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:

Whether a mining exploration company would be considered as having a permanent establishment in the Territory of Yukon for the purpose of the new mineral exploration tax credit under the Income Tax Act (Yukon) (the "Yukon Act")?

Position:

It is always a question of fact and circumstances as to whether a corporation has a permanent establishment in the Yukon.

Reasons:

Pursuant to the Yukon Act, "permanent establishment" means a permanent establishment as defined in the federal regulations. In other words, the expression "permanent establishment" has the meaning assigned by section 400 of the Income Tax Regulations (Canada) (the "Regulations").

It is always a question. of fact and circumstances as to whether a corporation has a fixed place of business in the Yukon for the purpose of the preamble of subsection 400(2) of the Regulations. In a situation wherein a mining exploration company owns a mining claim and owns an exploration camp (including airstrip and buildings) in the Yukon, and has explored for mineral resources in the mining claim area each year for several years using the camp facilities, the company may be considered as having a fixed place of business and hence a permanent establishment in the Yukon.

990890
XXXXXXXXXX Peter Lee
(613) 957-8977
Attention: XXXXXXXXXX

June 23, 1999

Dear Sirs:

Re: Permanent Establishment
Yukon Mineral Exploration Tax Credit

This is in reply to your facsimiles of April 1 and June 2, 1999, wherein you have requested our comments on whether XXXXXXXXXX. (the “Company") would be considered as having a permanent establishment in the Territory of Yukon for the purposes of the new mineral exploration tax credit (the "YMETC") under the Income Tax Act (Yukon) (the "Yukon Act").

We cannot provide the comments as requested because this relates to the specific fact situation of the Company. If you wish to obtain confirmation as to the income tax consequences of proposed transactions which are seriously being contemplated, you should submit a written request for an advance income tax ruling in accordance with Informa~ion Circular 70-6R3 dated December 30, 1996 and issued by Revenue Canada. However, we can provide our general views on the subject matter hereunder.

Our Comments

1. Pursuant to the Yukon Act, "eligible taxpayer" for the YMETC for a taxation year means:

....a corporation that maintains a permanent establishment in the Yukon at any time in the year, other than a corporation (i) that is exempt from tax payable under this Act by reason of section 7, or (ii) that is controlled by one or more persons who are exempt from tax payable under this Act by reason of section 7...

2. Pursuant to the Yukon Act, “permanent establishment" means a permanent establishment as defined in the federal regulations. In other words, the expression "permanent establishment" has the meaning assigned by section 400 of the Income Tax Regulations (Canada).

3. It is stated in the Tax News Bulletin issued by Yukon Finance in respect of the YMETC as follows:

Corporations must be subject to Yukon income tax for the taxation year in which YMETC is claimed. This requires that a corporation maintained a permanent establishment in the Yukon at some time during the taxation year to be eligible to apply for the YMETC.

4. The Department's general views on permanent establishment of a corporation in a province or territory are stated in Interpretation Bulletin IT-177R2 dated May 4, 1984 as amended by the Special Release dated August 25, 1995, and the Income Tax Technical News No. 2 dated December 30, 1994. A copy of these is attached herewith for your reference. You may also find it helpful to refer to the commentaries on the OECD model tax convention in respect of Article 5 - Permanent Establishment.

5. Pursuant to the preamble of subsection 400(2) of the Regulations, "permanent establishment" in respect of a corporation means a fixed place of business of the corporation. Pursuant to paragraph 400(2)(a) of the Regulations, if the corporation does not have any fixed place of business, the expression means the principal place in which the corporation's business is conducted. Furthermore, a corporation can be deemed to have a "permanent establishment" under paragraphs 400(2)(b) to (g) of the Regulations.

6. It is always a question of fact and circumstances as to whether a corporation has a fixed place of business in the Territory of Yukon for the purpose of the Yukon Act. Generally speaking, in a situation wherein a mining exploration company owns a mining claim and owns an exploration camp in the Territory of Yukon (the facilities of the camp include an airstrip, buildings, substantial heavy and drilling equipment, fuel storage, trucks and all-terrain vehicles), and has explored for mineral resources in the mining claim area each year for several years using the exploration camp facilities, the mining company may be considered as having a fixed place of business and hence a permanent establishment in the Yukon. This would be the case even though expidration could not be carr,ed out at certain times in each year due to harsh weather conditions. We do not comment on paragraphs 400(2)(a) to (g)of the Regulations because it depends on the specific facts which we do not have.

The above-noted comments represent our general views on the subject matter. As indicated in paragraph 22 of Information Circular 70-6R3, these comments do not constitute an advance income tax ruling and accordingly are not binding on the Department.

Yours truly,

for Director
Resources, Partnerships and Trusts Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

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