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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues: Whether expenses in respect of exploring for helium could qualify for treatment similar to such expenses in an oil or natural gas context for flow-through share purposes.
Position: No.
Reasons: Review of the facts of the situation in light of the relevant legislative provisions. Helium is an inert, non-hydrocarbon gas and as such would neither be a mineral nor "an accumulation of petroleum or natural gas" for purposes of the legislation under consideration.
2002-014127
XXXXXXXXXX A.A. Cameron
(613) 347-1361
December 11, 2002
Dear XXXXXXXXXX:
Re: Helium Project
This is in reply to your letter of May 6, 2002 in which you ask whether the Canada Customs and Revenue Agency (the "Agency") "has any established position with respect to the tax treatment of the exploration and production of helium, or ...suggestions on how...it should be treated currently." In particular, you are concerned "whether exploration for helium would qualify for normal flow-through share treatment as oil and gas exploration".
The provisions of section 66 of the Income Tax Act (the "Act") provide that, in specified circumstances, a "principal-business corporation" may renounce, in respect of a "flow-through share" in its capital stock, amounts determined with reference to certain exploration expenses it incurs [the terms in quotations having the meanings assigned in subsection 66(15) of the Act]. One of the requirements is that such exploration expenses be incurred by the corporation for the purpose of determining the existence, location, extent, or quality of either "an accumulation of petroleum or natural gas...in Canada" or "a mineral resource in Canada".
The term "mineral resource" has the meaning assigned in subsection 248(1) of the Act and is defined to mean certain specified mineral deposits. You have indicated that helium is "an inert gas" and is not a mineral. Therefore, exploration for helium would not be exploration relating to a mineral resource.
You have also indicated that "in the normal petroleum and natural gas business" helium "would not be considered to be a natural gas". Therefore, exploration for helium would not be exploration relating to an accumulation of petroleum or natural gas.
You note that paragraph 1 of Interpretation Bulletin IT-482 contains a statement that the term "natural gas" includes helium for purposes of that Bulletin. As noted in that paragraph, the Bulletin deals with the classification for capital cost allowance purposes of various types of pipelines under former Class 2 (now Class 1) to Schedule II to the Income Tax Regulations. Therefore, property encompassed by Class 1 will include pipelines, not only for oil or natural gas, but also for helium.
It should be noted that IT-482 is a historic bulletin, issued November 30, 1981, and that it is currently under review.
The appropriate treatment for purposes of the Act of expenses incurred by a particular taxpayer relating to the exploration for helium would be a question of fact to be determined from a review of all of the circumstances relevant to that particular taxpayer.
The above comments are given in accordance with the practice referred to in paragraph 22 of Information Circular 70-6R5, dated May 17, 2002, issued by the CCRA. As stated in that paragraph, written opinions are not advance income tax rulings and, accordingly are not binding on the Agency.
Please contact the writer if you have any questions regarding the above comments.
Yours truly,
for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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