27 September 2011 External T.I. 2011-0407961E5 - Taxability of Asteroid Mining Income

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.

Principal Issues: Whether "net smelter return of an asteroid mine" is taxable under the ITA.

Position: Yes.

Reasons: Wording of the Act.

XXXXXXXXXX
									Jelena Pajkovic
									(613) 941-0782
							   	 	2011-040796

September 27, 2011

Dear XXXXXXXXXX ,

Re: Taxability of Asteroid Mining Income

This is in response to your letter dated May 27, 2011, wherein you requested our comments regarding the taxability of asteroid mining income for your company under the Income Tax Act (hereinafter "ITA").

In your letter you have stated that you are researching positive and negative impacts of outer space asteroid mining venture. You have indicated that programs such as Canadian exploration expenses (hereinafter "CEE") or mineral exploration tax credit (hereinafter "METC") are only available to companies if their mining work takes place on Canadian territory. You found this to be unfair for a company as yours whose headquarters are in Canada, who is owned by Canadian investors, with Canadian directors and managers, employing Canadian staff and using Canadian resources.

However, you state that under the ITA a taxpayer is required to pay income tax on their "worldly" income from all sources. In your opinion, the word "world" refers to the domain of the planet Earth; therefore, net smelter return of an asteroid mine earned by a Canadian corporation would not be taxable under the ITA if the term of the sale occurs at the shipping point. You request whether we share your view.

Our Comments:

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of a request for an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, Advanced Income Tax Rulings, dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the internet at http://www.cra-arc.gc.ca. Where the particular transactions are complete, the inquiry (including all relevant documentation) should be addressed to the relevant tax services office, a list of which is available on the "Contact Us" page of the CRA website. We are, however, prepared to provide the following general comments.

We agree with your comments that CEE and METC would not be available to a corporation if its mining work is not located in Canada.

Pursuant to Section 2 of the ITA, an income tax shall be paid on the taxable income for each taxation year of every person resident in Canada at any time in the year. The taxable income of a taxpayer for a taxation year is the taxpayer's income for the year plus the additions and minus the deductions permitted by Division C.

The income of a taxpayer for a taxation year is further determined by following the rules provided under section 3 of the ITA, particularly subsection 3(a) which reads as follows:

"3. Income for taxation year - the income of a taxpayer for a taxation year for the purposes of this Part is the taxpayer's income for the year determined by the following rules:

(a) determine the total of all amounts each of which is the taxpayer's income for the year (other than a taxable capital gain from the disposition of a property) from a source inside or outside Canada, including, without restricting the generality of the foregoing, the taxpayer's income for the year from each office, employment, business and property"
(Our emphasis)

Subsection 3(a) of the ITA does not make any reference to the "worldly" income; the term used in this section is "inside or outside Canada". Therefore, income from a source in a particular place (an asteroid for example) would have to be included in the taxpayer's income for a taxation year under section 3 of the ITA, if the particular taxpayer (a corporation for example) is a resident in Canada.

We trust the above comments will be of assistance.

Yours truly,

Maurice Bisson, CGA
for Director
Corporate Reorganizations and
Resources Industry Section
Reorganizations and Resources Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch