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 expenses relating to an exploration program will qualify for inclusion under paragraph (f) to the definition of CEE. Whether a mine which may be established would be a "new mine" for purposes of paragraph (g) to the definition of CEE.
Position: Expenses incurred in respect of the proposed exploration program may potentially qualify under paragraph (f) to the definition of CEE. A mine established in accordance with the mine plan described herein would be a "new mine" for purposes of paragraph (g) to the definition of CEE. Certain costs do not qualify as CEE.
Reasons: Based upon the facts of the situation and a written opinion received from Natural Resources Canada dated October 27, 2004. A representative of that Department visited the site and reached conclusions that supported the above positions.
XXXXXXXXXX 2004-008972
XXXXXXXXXX, 2004
Dear XXXXXXXXXX:
Re: XXXXXXXXXX
Advance Income Tax Ruling
This is in reply to your letter dated XXXXXXXXXX wherein you requested an advance income tax ruling on behalf of the above named corporation. We also acknowledge receipt of the additional information provided in your letter of XXXXXXXXXX and responses provided on XXXXXXXXXX to our various questions, as well as in our various telephone conversations (XXXXXXXXXX ) in connection with your request.
We understand that to the best of your knowledge and that of the taxpayer involved, none of the issues contained herein:
(i) is in an earlier tax return of the taxpayer or a related person;
(ii) is being considered by a tax services office or taxation centre in connection with a previously filed tax return of the taxpayer or a related person;
(iii) is under objection by the taxpayer or a related person;
(iv) is before the courts or, if a judgement has been issued, the time limit for appeal to a higher court has not expired; or
(v) is the subject of an advance income tax ruling previously issued by the Income Tax Rulings Directorate.
The above corporation files its income tax returns under business number XXXXXXXXXX and its head office is located at XXXXXXXXXX. It is serviced by the XXXXXXXXXX Tax Services Office and the XXXXXXXXXX Tax Centre.
Our understanding of the facts, proposed transactions and purpose of the proposed transactions is as follows:
Definitions
Unless otherwise stated, in this letter, the following terms and expressions have the meanings specified below:
"Act" means the Income Tax Act R.S.C. 1985 (5th Supp.), c.1 as amended to the date of this letter,
"adjusted cost base" has the meaning assigned to that expression by section 54 of the Act,
"Canadian development expense" has the meaning assigned to that expression by subsection 66.2(5) of the Act,
"Canadian exploration expense" has the meaning assigned to that expression by subsection 66.1(6) of the Act,
"Canadian resource property" has the meaning assigned to that expression by subsection 66(15) of the Act,
"Concentrate" means XXXXXXXXXX,
"depreciable property" has the meaning assigned to that term by subsection 13(21) of the Act,
"flow-through share" has the meaning assigned to that expression by subsection 66(15) of the Act,
"Mineral" means XXXXXXXXXX,
"mineral resource" has the meaning assigned to that term by subsection 248(1) of the Act,
"MP Co." means XXXXXXXXXX,
"principal-business corporation" has the meaning assigned to that term by subsection 66(15) of the Act,
"Property" means the mining property located in the municipality of XXXXXXXXXX owned by X Co. which is located on the XXXXXXXXXX,
"public corporation" has the meaning assigned to that term by subsection 89(1) of the Act,
"taxable Canadian corporation" has the meaning assigned to that expression by subsection 89(1) of the Act,
"V Co." means XXXXXXXXXX,
"W Co." means XXXXXXXXXX (which holds approximately XXXXXXXXXX % of the shares of X Co.),
"X Co." means XXXXXXXXXX,
"Y Co." means XXXXXXXXXX,
"Z Co." means XXXXXXXXXX,
"Zone A" means the XXXXXXXXXX deposit, and
"Zone B" means the XXXXXXXXXX deposit.
Facts
1. X Co. is a public corporation, a taxable Canadian corporation and a principal-business corporation for purposes of the Act.
2. The fiscal period of X Co. ends on XXXXXXXXXX. The XXXXXXXXXX Annual Report of X Co. for its taxation year ended XXXXXXXXXX was provided to us.
3. The authorized share capital of X Co. consists of an unlimited number of common shares without par value. At XXXXXXXXXX, X Co.'s issued share capital consisted of XXXXXXXXXX common shares.
4. The common shares of X Co. are listed on the XXXXXXXXXX stock exchange under the ticker symbol: XXXXXXXXXX. These shares are widely held by members of the public.
5. The business operations of X Co. involve the exploration and the development of the Mineral project, located approximately XXXXXXXXXX. X Co. has been exploring the Property from the surface for its XXXXXXXXXX content. The XXXXXXXXXX ore would be mined and processed at the beneficiation plant to produce the Concentrate. XXXXXXXXXX Over the last XXXXXXXXXX years, X Co. has invested over $XXXXXXXXXX in the development phase of the project. This includes funds spent on exploration drilling, process development, engineering feasibility study, marketing study, environmental impact study, basic engineering and the acquisition of surface rights.
6. From XXXXXXXXXX, X Co. conducted drilling campaigns on adjacent Zone A and Zone B. X Co. drilled XXXXXXXXXX holes throughout the mineralized zones for a total of XXXXXXXXXX metres.
7. The Property is located about XXXXXXXXXX km from the former Y Co. site. Y Co. mined the Mineral at a nearby site from XXXXXXXXXX. This site has been shut down for more than XXXXXXXXXX years. Even though the mining site was not restored to a usable state (as would be required under modern regulations) when Y Co. left the site, it was nevertheless abandoned. Y Co. mined ore from XXXXXXXXXX open pits and an underground mine. The concentrator buildings, offices, shops and headframe were left standing on the site. The tailings pond was not reclaimed. The buildings were eventually removed by the provincial and municipal authorities leaving behind only the concrete foundations. The headframe was also dismantled and the shaft was covered with a concrete cap. The tailings pond and dam were left without reclamation and natural re-vegetation has taken place. A map showing the location of the former Y Co. site and the Property was provided. Zones A and B are not connected by underground access to the old Y Co. mine. They are distinct and separate zones from the ore mined at the Y Co. site. Zone A is a new deposit which was not known to be present in XXXXXXXXXX before the drilling program in XXXXXXXXXX. Its mineral content is XXXXXXXXXX% higher than that mined at Y Co.'s site.
8. In XXXXXXXXXX, a consortium known as MP Co. issued a feasibility study report to X Co. regarding the company's project to develop a mining and metallurgical complex including an underground mine, a concentrator and a converter to produce the Mineral. At that time, the project was based on mining Zones A and B.
9. After the preparation of a revised feasibility study, in XXXXXXXXXX, X Co. planned that the mining of Zone B would only begin in the XXXXXXXXXX year of operation, following depletion of Zone A. This study indicated proven and probable reserves of XXXXXXXXXX tonnes in Zone A at an average grade of XXXXXXXXXX% per tonne. It is assumed that these reserves are limited to elevations between XXXXXXXXXX. It also identified additional minerals in the ore, which could provide significant additional revenue. The principal minerals were XXXXXXXXXX.
10. In XXXXXXXXXX, X Co. received its mining lease from the XXXXXXXXXX. The lease grants X Co. appropriate access and surface usage rights to allow it to mine the Mineral reserves. Such a lease will be granted only if the ore can be exploited economically.
11. On XXXXXXXXXX, X Co. entered into a purchase agreement with the city of XXXXXXXXXX for the acquisition of a section of the surface rights (XXXXXXXXXX) of the former Y Co. site for an amount of $XXXXXXXXXX. A non-refundable amount of $XXXXXXXXXX was paid upon the signing of the agreement and the balance of $XXXXXXXXXX will be payable at the beginning of the construction work on the site, and at the latest on XXXXXXXXXX. The acquisition of the site is conditional on obtaining all the necessary permits, certificates and other authorizations from the XXXXXXXXXX for the project.
12. Due to environmental issues the project was delayed to XXXXXXXXXX. As a result of XXXXXXXXXX and an unfavorable change in the exchange rate between the Canadian-U.S. dollar, the reserves of Zone B were classified as marginal. These changes reduced the internal rate of return of the project to below an acceptable level. Therefore, in XXXXXXXXXX, X Co. requested Z Co., an engineering firm, to prepare a report on an exploration program which will have as its ultimate objectives a better knowledge of the quality and quantity of the reserves and which will take into account the market conditions of XXXXXXXXXX and the exclusion from the reserves of the proven and probable reserves in Zone B. This study was also able to reduce the expected cost of bringing the project into production by some $XXXXXXXXXX on total estimated capital costs of about $XXXXXXXXXX. This reduction, although substantial, could only bring the internal rate of return to XXXXXXXXXX%. Considering the high risk of mining, this rate of return is insufficient. The results of this exploration program will permit X Co. to obtain additional information to decide whether or not to bring into production in reasonable commercial quantities the Mineral on the Property. A copy of the Underground Exploration Program dated XXXXXXXXXX prepared by Z Co. was provided to us.
Proposed Transactions
13. Given the economic conditions prevailing in XXXXXXXXXX, it is preferable to proceed with an additional exploration phase to increase the level of confidence in the grade, geometry and continuity of Zone A down to a depth of XXXXXXXXXX metres. Therefore, X Co. will undertake an exploration program to increase the level of confidence in the grade, geometry and continuity of that deposit. The proposed underground exploration program has four objectives. They are as follows:
a) To extend the known limits of the mineralized zone of Zone A between the XXXXXXXXXX-metre level and the XXXXXXXXXX-metre level by drilling XXXXXXXXXX holes totaling XXXXXXXXXX metres;
b) To undertake definition drilling from the XXXXXXXXXX-metre level and the XXXXXXXXXX-metre level to better define the distribution of higher XXXXXXXXXX grades in the bottom part of the Zone A orebody. The inferred resources in the Zone A are estimated at XXXXXXXXXX tonnes at a grade of XXXXXXXXXX. With new geological information, the inferred resources could potentially be transferred into the measured and indicated resource categories;
c) To drill one exploration hole in the central area of the XXXXXXXXXX. No hole has yet been drilled in this area due to the thickness of the overburden, which is over XXXXXXXXXX metres. A better knowledge of the geology in this area will permit a more effective exploration program over the entire property in the coming years; and
d) Excavate a XXXXXXXXXX -metre long drift in the mineralized zone at the XXXXXXXXXX-metre level on section XXXXXXXXXX, and take a bulk sample of XXXXXXXXXX for metallurgical test work. The mining of a XXXXXXXXXX bulk sample will certainly provide confidence in the quality of the resources. X Co. has done metallurgical tests only from core samples so far. These were selected to be representative of the ore and the results were useful in developing the mill flow sheet and establishing the recovery that could be expected. However, the bulk sample will refine that knowledge by permitting more elaborate tests that could lead to an improvement in the recovery rate. X Co. is interested in improving the recovery rate in order to increase the likelihood of bringing the mine into production. From the bulk sample, XXXXXXXXXX of the Concentrate will be produced, to provide material for testing at potential customers' facilities. It is important for potential customers to be able to test the Concentrate, or else they will be reluctant to enter into long-term contracts with X Co. The bulk sample will also be useful in testing for the possibility of recovering secondary minerals.
The proposed exploration does not include the exploitation of the former mine site of Y Co. The objective of the exploration program is to ultimately increase the Mineral reserves to a level sufficient to extend the current projected mine life of XXXXXXXXXX years.
14. Additional drilling of the Zone A ore body will add higher-grade reserves and maintain the project's internal rate of return above XXXXXXXXXX% even at lower prices. Secondly, to determine the final feasibility of the project, all reserves used in the engineering feasibility study must be measured and indicated by category as per the National Instrument rule 43-101 which defines the required amount of drilling and definition drilling to categorize mineral reserves in order to be accepted and secure for a bankable feasibility. This definition drilling campaign will allow X Co. to convert inferred reserves in the Zone A to the measured and indicated category and add XXXXXXXXXX to the project as a replacement for Zone B.
15. A campaign of drilling holes from the surface would not produce the desired results. At depths of more than XXXXXXXXXX metres, holes drilled from the surface are unlikely to maintain the already established drilling grid of XXXXXXXXXX and, therefore, do not have the reliability necessary to establish geological reserves of proven and probable categories. Underground drilling will allow X Co. to precisely target the extension of the Zone A lens between elevation XXXXXXXXXX while respecting the drilling grid. XXXXXXXXXX holes will be drilled totaling XXXXXXXXXX metres in order to find the extension of the peripheral zones that were not intercepted by surface drilling previously done.
16. The Underground Exploration Program which will result in X Co. incurring $XXXXXXXXXX in costs (including the cost of capital assets) will allow X Co. to verify the extension of Zone A at various depths and will include the following elements:
a) Sink a XXXXXXXXXX shaft to provide access down to the XXXXXXXXXX-metre level to permit a XXXXXXXXXX drilling campaign to extend Zone A to a depth of between XXXXXXXXXX metres and XXXXXXXXXX metres;
b) The cutting out of required stations for the underground exploration program;
c) The cutting out of a loading station at the XXXXXXXXXX-metre level;
d) At the XXXXXXXXXX-metre level, a XXXXXXXXXX-metre long drift will be driven and XXXXXXXXXX drilling stations will be established at XXXXXXXXXX-metre intervals;
e) At the XXXXXXXXXX-metre level, the drift will be developed for a length of XXXXXXXXXX metres. It will also provide XXXXXXXXXX drilling stations at XXXXXXXXXX-metre intervals;
f) At the XXXXXXXXXX-metre level, the excavation of a XXXXXXXXXX bulk sample to be obtained by driving a XXXXXXXXXX-metre long drift into Zone A;
g) At the XXXXXXXXXX-metre level, a XXXXXXXXXX -metre drift will be driven to provide access for deep XXXXXXXXXX drilling of Zone A at 15-metre intervals;
h) The installation of a system to pump water from the bottom of the shaft up to the surface;
i) The installation of a temporary ventilation system to supply the galleries with fresh air from a rigid conduit in the shaft;
j) A campaign of underground drilling on XXXXXXXXXX levels totalling XXXXXXXXXX metres of drilling aligned on the extension of Zone A at a depth below the XXXXXXXXXX-metre level;
k) Program of metallurgical tests to confirm the rate of recovery of XXXXXXXXXX of the mineral;
l) The installation of surface services including the exploration hoist, compressors, electricity distribution system and site offices;
m) The installation of a pipe to bring drinking water from the existing municipal system to residences affected by the underground work, and the installation of a sewer pipe to take domestic waste water from the project site to the municipal system; and
n) Basins for decantation and recovery of all water collected on the site, due to the agricultural environment and the presence of a nearby provincial park.
17. The total costs of the program can be summarized as follows:
Description
Labour
Materials
Equipment
Total Cost
Cost
Underground Contract
XXXXXXX
XXXXXX
XXXXXX
XXXXXX
General Contract
XXXXXXX
XXXXXX
XXXXXX
XXXXXX
Undergroung Infrastructure
XXXXXXX
XXXXXX
XXXXXX
XXXXXX
Underground Mobile Equip.
XXXXXXX
XXXXXX
XXXXXX
XXXXXX
Headframe & Hoist
XXXXXXX
XXXXXX
XXXXXX
XXXXXX
Underground Excavation
XXXXXXX
XXXXXX
XXXXXX
XXXXXX
Exploration Drilling
XXXXXXX
XXXXXX
XXXXXX
XXXXXX
Metallurgical Test Work
XXXXXXX
XXXXXX
XXXXXX
XXXXXX
Surface Infrastructure
XXXXXXX
XXXXXX
XXXXXX
XXXXXX
Environment management
XXXXXXX
XXXXXX
XXXXXX
XXXXXX
Freight
XXXXXXX
XXXXXX
XXXXXX
XXXXXX
Indirect Costs
XXXXXXX
XXXXXX
XXXXXX
XXXXXX
TOTAL
XXXXXXX
XXXXXX
XXXXXX
XXXXXX
There is a possibility that the proposed shaft and drifts will be used for production purposes, if and when, X Co. brings the property into production. However, before the exploration program is completed, the information is analyzed, and a feasibility study demonstrates the viability of the mine, X Co. cannot make the decision to bring the mine into production.
18. Following the completion of the exploration program referred to in paragraphs 13 to 17 above and assuming a positive decision to develop the project, X Co. will incur infrastructure and capital asset costs of $XXXXXXXXXX (excluding working capital) during the pre-production period of XXXXXXXXXX months leading up to the commercial production of Zone A. Consideration was given to using the existing mine shaft on the abandoned Y Co. mine site as a means to access Zone A. Due to higher production costs, potential negative environmental impact and a longer development timeframe, it was concluded that sinking a new shaft and locating all new facilities on the Zone A site was the only feasible alternative. The mining operations at Zones A and B will depend exclusively on new infrastructure above and below the surface, except for the open pits from the former sites that it will use for a fresh water supply and to dispose of the tailings. It will also be responsible for the reclamation to today's environmental standards of the tailings dam and the pits at the end of its mining operation. The abandoned Y Co. mine site will not be used for any other purpose.
19. The mining of Zone A will be with an underground mine complex. The mine will be developed by sinking a timbered rectangular XXXXXXXXXX shaft XXXXXXXXXX-metres deep (with the last portion enlarged to XXXXXXXXXX compartments to allow for future deepening) and a service ramp with a XXXXXXXXXX% slope from the surface to the XXXXXXXXXX -metre level. The shaft will be used to hoist ore and waste rock, as well as transporting the personnel and materials. Oversized equipment and materials will be taken underground via a ramp. All underground vehicles will be trackless. The shaft and ramp will serve a dual purpose - for normal service and for ventilation. Mining will begin at the lowest anticipated level where the ore grade is higher. By XXXXXXXXXX, X Co. should be in its first year of production. There will also be a mill and conversion plant. The concentration process will consist of three parts: ore preparation, followed by primary flotation and a re-treatment and polishing circuit. XXXXXXXXXX percent of the tailings from the new plant will be pumped to and stored in basins located at the former Y Co. site, while the remaining XXXXXXXXXX% will be returned underground in the form of a paste backfill.
The project start-up costs are estimated to be as follows:
Mine development (contractors, ventilation, infrastructure, mobile equipment) $XXXXXXX
Head shaft and hoist house............................................................... XXXXXXX
Mill or concentrator........................................................................XXXXXXX
The Concentrate plant.....................................................................XXXXXXX
Paste backfill plant and tailing area......................................................XXXXXXX
Surface infrastructure and facilities......................................................XXXXXXX
Indirect costs (engineering, owners costs, insurance, spares, contingencies, etc.) XXXXXXX
Total $XXXXXXX
20. Y Co. has designed (with the help of specialized external consultants) the Concentrate plant that will extract the Mineral. The Concentrate produced will be crushed into different sizes depending on customer requirements. All documents are ready to solicit proposals for sinking the shaft and opening the mine. On an annual basis, the plant should produce XXXXXXXXXX tonnes of the Mineral contained in XXXXXXXXXX tonnes of the Concentrate.
21. According to Natural Resources Canada, the Mineral is a base metal and, therefore, the Mineral contained in Zones A and B meets the definition of "mineral resource" by virtue of paragraph (a) of that definition.
22. X Co. is in the final stage of obtaining a certificate of authorization from the XXXXXXXXXX. It is expected to be issued in XXXXXXXXXX. This certificate must be obtained before the project can go ahead. X Co. has promised to remove about XXXXXXXXXX tonnes of radioactive slag from the former Y Co. site.
23. Annual ore production is estimated to be approximately XXXXXXXXXX tonnes. The mineral to be extracted in the first XXXXXXXXXX years is estimated to be XXXXXXXXXX tonnes. Relatively minor changes to the process will allow X Co. to extract and sell a number of mineral by-products contained in the ore, including XXXXXXXXXX as a possible by-product.
24. V Co. has an option to acquire a XXXXXXXXXX% working interest in the Property by contributing XXXXXXXXXX% of the total expenses incurred to bring the XXXXXXXXXX ore deposits into production and by the payment of $XXXXXXXXXX cash, of which $XXXXXXXXXX has been received. V Co. must exercise this option within XXXXXXXXXX days of X Co. receiving the certificate of authorisation from the XXXXXXXXXX. W Co. also has an option to acquire a XXXXXXXXXX% working interest in the XXXXXXXXXX ore deposits by contributing XXXXXXXXXX% of the total expenses to be incurred to bring the XXXXXXXXXX ore deposits into production. W Co. must decide prior to the financing phase if it will exercise its option. It is anticipated that V Co. and W Co. will not exercise their options.
Purpose of Proposed Transactions
25. The proposed exploration expenditures will allow X Co. to gain greater certainty with respect to the Mineral in Zone A. As such, the exploration program will allow X Co. to increase its level of confidence in the grade, geometry and continuity of Zone A. If the program is successful, assuming favorable prices for the Mineral and the ability to finance development of the project, X Co. intends to take the project into production as described in paragraphs 18 to 20 above.
26. X Co. is planning to issue flow-through shares worth approximately $XXXXXXXXXX, as well as $XXXXXXXXXX in common shares to assist in financing the exploration and development activities described above. The flow-through shares may be issued along with the common shares or issued separately. This financing will be issued in XXXXXXXXXX if a certificate of authorization from the XXXXXXXXXX is received prior to the end of XXXXXXXXXX. If the certificate is not issued until XXXXXXXXXX, the financing will be issued in XXXXXXXXXX. The ability to finance the exploration and development activities using flow-through shares depends upon whether the proposed expenditures qualify as Canadian exploration expenses. Assuming they do qualify, X Co. intends to renounce those expenses to the flow-through shareholders in accordance with the provisions of subsections 66(12.6) and 66(12.66) of the Act.
Rulings Requested and Given
Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions and purpose of the proposed transactions, and provided further that the proposed transactions are carried out as described above, our rulings are as follows:
We confirm that
A. Subject to Comment ii) below, an expense incurred by X Co., after the date of this letter and in respect of the exploration program referred to in paragraphs 13 to 17 above, which is incurred for the purpose of determining the existence, location, extent or quality of a mineral resource in Zone A, including any expense incurred in the course of:
(i) prospecting,
(ii) carrying out geological, geophysical, or geochemical surveys,
(iii) drilling by rotary, diamond, percussion, or other methods, or
(iv) trenching, digging test pits, and preliminary sampling,
but not including any Canadian development expense, will qualify as Canadian exploration expense of X Co. pursuant to paragraph (f) to the definition thereof contained in subsection 66.1(6) of the Act provided:
a) the expense does not constitute the cost, or any part of the cost, to X Co. of any depreciable property;
b) the expense is incurred before a mine comes into production in reasonable commercial quantities in respect of any mineralization that may be found in Zone A pursuant to the exploration program referred to above; and
c) if the exploration program referred to above culminates in the development of a mining operation, such operation is conducted utilizing a new shaft at Zone A rather than an extension of a mine that has come into production in reasonable commercial quantities.
B. A mine established for Zone A, in accordance with the mine plan described in paragraphs 18 to 19 above, will be considered to be a new mine in a mineral resource in Canada and subject to Comment ii) below, any expense incurred by X Co., after the date of this letter, for the purpose of bringing the mine into production in reasonable commercial quantities and incurred before the coming into production of the mine will be a Canadian exploration expense within the meaning of paragraph (g) of the definition thereof contained in subsection 66.1(6) of the Act, provided the expense does not constitute the cost, or any part of the cost, to X Co. of any depreciable property or Canadian resource property.
Except as expressly stated, our rulings do not imply acceptance, approval or confirmation of any income tax implications relating to the facts or proposed transactions. In particular, nothing in this letter should be interpreted as confirming, either expressly or implicitly:
i) the determination of the fair market value or adjusted cost base of any property referred to herein;
ii) whether any particular expense incurred by X Co. in respect of the exploration program referred to in paragraphs 13 to 17 above will qualify as Canadian exploration expense of X Co. It is our view that expenses that do not meet the purpose test in paragraph (f) of the definition of Canadian exploration expense will only be eligible to be included in paragraph (g) of that definition if they are incurred for the purpose of bringing the mine into production in reasonable commercial quantities. In other words, the expenses must be incurred after the decision has been made to proceed with bringing a new mine into production in reasonable commercial quantities. Expenses incurred in order to determine the economic feasibility of whether or not to proceed with developing a new mine, or that are related to the processing or sale of the Mineral do not, in our view, satisfy the purpose test in either of paragraph (f) or (g) of the definition of Canadian exploration expense. Although we have not reviewed the expenses described in paragraphs 13 to 19 above to determine whether or not they meet either one of the purpose tests, it is our view that those expenses related to the metallurgical tests on the bulk sample to confirm the mill flow sheet and the recovery rate, as well as to the sample that will be sent to potential customers to establish the marketability of the Concentrate are ineligible for inclusion in either of paragraph (f) or (g) of the definition of Canadian exploration expense, and
iii) whether any share in the capital stock of X Co. which is issued as envisioned in paragraph 26 above will be a flow-through share.
The above rulings are given subject to the limitations and qualifications set forth in Information Circular 70-6R5 issued by the Canada Revenue Agency (the "Agency") on May 17, 2002 and are binding on the Agency provided that the proposed exploration program described in paragraphs 13 to 17 above and the development of the mine as described in paragraphs 18 and 19 above are completed by XXXXXXXXXX.
These rulings are based on the Act in its present form and do not take into account the effect of any proposed amendments thereto.
Yours truly,
XXXXXXXXXX
Manager, Resources Industry Section
for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Planning Branch
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