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 CRA would publish its position on whether community consultation, feasibility and environmental study costs incurred by mining companies at the exploration stage will be included in CEE under paragraph (f) of that definition.
Position: Guidelines have been provided
Reasons: Actual determination will depend on the facts of a particular situation
2007-025276
XXXXXXXXXX T. Harris
(613) 957-2114
September 19, 2007
Dear XXXXXXXXXX:
Re: Canadian Exploration Expenses
XXXXXXXXXX the Canada Revenue Agency ("CRA") clarify its interpretation of the circumstances in which community consultation expenses, environmental study expenses and feasibility study expenses that are incurred by mining companies at the exploration stage will qualify as Canadian exploration expenses ("CEE") within the meaning of subsection 66.1(6) of the Income Tax Act. In order for any such expenditure to qualify as CEE, it must be incurred for the purpose of determining the existence, location, extent or quality of a mineral resource in Canada (referred to in the attached table as the "purpose test").
The CRA has been aware of the mining industry's interest in this issue; however, to date we have not had many occasions to consider whether consultation expenses, environmental study expenses or feasibility study expenses incurred by a mining exploration company will qualify as CEE in an actual fact situation. Consequently, our consideration of this issue has been limited to an overall review of general principles. For this reason, the CRA can only provide the mining industry with general guidelines that it will follow in determining whether these types of expenditures that are incurred by mining companies at the exploration stage (i.e. for the purpose of determining the existence, location, extent or quality of a mineral resource in Canada) will qualify as CEE. A copy of these guidelines, which have been prepared in consultation with Natural Resources Canada and Finance Canada, is included in the attached table, XXXXXXXXXX,
As noted in the attached table, the actual treatment of a particular expense incurred by a taxpayer will depend on the particular facts of a given situation and, therefore, may differ from that outlined in the table.
Yours truly,
Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
cc. Mr. Robert Clark, A/Director General
Economics, Investment and Fiscal Analysis Branch
Natural Resources Canada
Ms Mara Praulins, Director General
Audit Professional Services Directorate
Compliance Programs Branch
Canada Revenue Agency
Ms Jane Stalker, Coordinator, Resource Industries
Industry Specialist Services
Compliance Programs Branch
Canada Revenue Agency
Guidelines for Determining the Tax Treatment of Certain Exploration Expenses
Note: This table has been prepared to provide the guidelines that the Canada Revenue Agency (CRA) will follow in determining whether environmental study expenses, community consultation expenses and feasibility study expenses that are incurred by mining companies at the exploration stage (i.e. for the purpose of determining the existence, location, extent or quality of a mineral resource in Canada, hereinafter referred to as the "purpose test") will qualify as Canadian exploration expenses ("CEE"). The table is intended as a guide only. The actual treatment of a particular expense incurred by a taxpayer will depend on the facts relevant to the particular situation and, therefore, may differ from that outlined in this table.
Issue Description of Expense Guideline
Environmental studies Environmental assessments Not CEE as it is part of
undertaken to meet a legal or the cost of a Canadian
informal requirement to obtain Resource Property (CRP)
a permit. which is Canadian
Development Expense (CDE)
Environmental assessments CEE where related to
undertaken to meet a legal or the permit providing
informal obligation under the for the exploration
terms of the permit. process (not part of
the cost of a CRP)
Other environmental assessments
conducted at the discretion of the taxpayer:
- environmental sampling/monitoring CEE
in relation to an exploration activity;
- targeted environmental assessments CEE
e.g., vegetation, fisheries and water
assessments) conducted in conjunction
with a specific exploration activity;
- general baseline environmental Not CEE
assessments undertaken prior to carrying (does not meet
out a specific exploration activity. purpose test)
Community consultation Consultation to assess community Not CEE
attitudes/community information (does not meet
program, undertaken prior to a purpose test)
decision to explore.
Consultation undertaken to meet a CDE (part of
legal or informal requirement to the cost of a
obtain a permit. CRP)
Consultation undertaken to meet a CEE where
egal or informal obligation under related to the
the terms of the permit. permit providing
for the exploration
process (not part of
the cost of a CRP)
Negotiation to secure surface access CEE (where
for exploration purposes (beyond the incurred in relation
requirements for/of the permit). to the exploration
process and not a
broader purpose)
Negotiation with local community to CEE (not part of
secure certainty with respect to the cost of a CRP)
exploration operations (additional to
requirement for/of a permit and where
other party does not hold surface rights).
Other consultation undertaken at the
taxpayer's discretion in respect of the:
- exploration process only; CEE
- exploration and mining process; CEE to the extent
the expense meets
purpose test
Feasibility studies Preliminary planning for a potential Not CEE (does not
exploration activity undertaken prior meet purpose test)
to a decision to explore.
Planning for, and studies relating to, CEE
the conduct of an exploration activity
or some part thereof.
Physical and chemical assessments CEE
related to a deposit, with the objective
of informing a decision whether to
undertake more advanced exploration
at the site.
Assessments of the physical and CEE
chemical characteristics of the deposit
to assess its potential as a commercial
deposit.
Assessments of mine development Not CEE (does not
options and/or profitability of meet purpose test)
developing the deposit into a mine.
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