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: What is the treatment of losses from mining operations, incurred before achieving production in reasonable commercial quantities?
Position: Although pre-production revenue may fall within the ambit of subsection 66(12.1) and a taxpayer's CCEE balance would be reduced, on an administrative basis, there has been a long-standing agreement between industry and the CCRA whereby the CCRA agreed not to object where a Canadian exploration expense was reduced by the related pre-commercial production revenue.
Reasons: Established position.
XXXXXXXXXX 2001-007976
D. Shugar
June 6, 2001
Dear XXXXXXXXXX:
Re: Mining Losses Prior to Commencement of Commercial Production
This is in reply to your letter of April 9, 2001, addressed to Mr. Barry Rooke, Assistant Director, Verification and Enforcement, Calgary Tax Services Office, in which you requested that the Canada Customs and Revenue Agency (the "CCRA") confirm its position regarding the treatment of losses from mining operations, incurred before achieving production in reasonable commercial quantities. Mr. Rooke forwarded your letter to us for reply.
Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments.
In our view,
1) Expenses that meet the purpose test in paragraph (g) of the definition of Canadian exploration expense in subsection 66.1(6) incurred during the period after a mine comes into production but before production in reasonable commercial quantities is achieved may be included in Canadian exploration expense;
and
2) Pre-commercial production revenue may fall within the ambit of subsection 66(12.1) of the Act. Where paragraph 66(12.1)(a) applies, a taxpayer's "cumulative Canadian exploration expenses is reduced by consideration received (including revenue from a bulk sample where the original cost relates to CEE of the taxpayer). However, on an administrative basis, there has been a long-standing agreement between industry and the CCRA whereby the CCRA agreed not to object where a Canadian exploration expense was reduced by the related pre-commercial production revenue.
We trust our comments will be of assistance to you.
Yours truly,
for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Legislation Branch
cc: Mr. Barry Rooke, Assistant Director, Calgary TSO
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