10 November 1992 Income Tax Severed Letter 9232976 - Stone Quarry - Industrial Mineral Mine

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.

November 10,
1992

Appeals Division Resource
Industries
Jean-Claude Fontaine Section
Appeals Officer John Chan
957-8975
923297
24(1)

This is further to your request of November 3, 1992 for a response on an urgent basis concerning whether a limestone quarry is a "mine" for purposes of classifying primary crushing equipment used therein as Class 10(k) property.

24(1)

Our comments below were orally provided to you on November 4 and 5.

24(1) classified its primary crushing equipment as Class 29 property in its income tax return for the 1987 taxation year. This classification was subsequently revised by the Montreal District Office to Class 10(k), i.e.:

• (k) property (other than property included in Class 28 or property described in paragraph (l) or (m)) that was acquired for the purpose of gaining or producing income from a mine and that is

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• (i) a structure that would otherwise be included in Class 8, or (ii) machinery or equipment, .... (Emphasis added)

You are wondering whether the equipment might be included in Class 22, i.e., power-operated moveable equipment designed for the purpose of excavating, moving, placing or compacting earth, rock, concrete or asphalt.

You also asked whether a limestone quarry would qualify for treatment as an "industrial mineral mine" for purposes of claiming CCA in respect of the capital cost of the quarry under paragraph 1100(1)(g) and Schedule V of the Regulations.

You have informed us that the equipment involved is primary crushing equipment which is not used for manufacturing and processing, but instead, is used for producing an industrial mineral, limestone. That such equipment is not used in a manufacturing and processing activity for purposes of Class 29 is consistent with the following statement at paragraph 11 of IT-145:

• Producing industrial minerals is considered to include all activities connected with the mining, excavating and extracting the mineral material from the mine or pit area, including any primary crushing operation required to make it transportable from the mine or pit area as well as the transporting of the material from the mine or pit.

Paragraph 11 of IT-145 also explains that the Department's views with respect to the meaning of "industrial mineral":

The Department considers an industrial mineral to
include any mineral that does not qualify as a mineral
from a deposit that is a mineral resource as defined
in subsection 248(1). Examples of industrial minerals
(essentially non-metallic minerals) are:
Gravel Limestone
Clay Sand
Stone Feldspar
(Emphasis
added)

Also, paragraph 3 of IT-492 comments on "industrial minerals" thus:

• The term "industrial mineral" means a non-metallic mineral capable of being used in industry, and the word mineral has

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its ordinary meaning of any chemical or compound
occurring naturally as a
product of inorganic processes. Some of the most common
industrial minerals are: ... Stone; Limestone ....

You pointed out that in The Queen v. Nomad Sand and Gravel Limited, [[1991] 1 C.T.C. 60] 90 DTC 5032 (FCA, not appealed to the SCC), the FCA held that front-end loaders used in a sand and gravel pit operation were class 22 assets and not class 10(k) assets. In arriving at its decision, the FCA stated that although the sand and gravel being extracted from the pit by the taxpayer could be described as "industrial minerals", that did not mean that they had come from a "mine" as that term is generally understood, since that word is not commonly used to describe a sand or gravel pit.

In connection with the adverse decision in the Nomad case, Technical Publications Division referred the matter to the Department of Finance ("Finance") on January 7, 1991 for tax policy consideration. Finance's reply in their letter dated October 1, 1991 was as follows:

21(1)(b)

Your questions may be summarized as follows:

• 1. Should 24(1) primary crushing equipment be classified as property which may be included in Class 10(k), Class 22 or some other class?
• 2. How could 24(1) limestone quarry be treated as an "industrial mineral mine" in view of the Nomad case which stated that a stone quarry, by analogy to a sand and gravel pit, is not a "mine"?

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Our Comments

Stone Quarry

Initially, you mentioned that the quarry under consideration was a "stone quarry". Subsequently, you clarified that 24(1) quarry was a limestone quarry.

A limestone quarry could be either a stone quarry or a calcite quarry depending on the circumstances. In general terms, "stone" is a broad term referring to any rock or non- metallic mineral matter; "limestone" is sedimentary rock containing calcium carbonate (calcite). If the principal mineral being extracted from the quarry is calcite, then the quarry may be a calcite quarry, but not a "stone quarry". On the other hand, if the principal mineral being extracted from the quarry is a mineral aggregate (rock and calcite) and the mineral aggregate is being used for construction purposes, then such an operation would fall within the ambit of the term "stone quarry". This has been confirmed informally with Mr. Robert Clarke, Director of the Mining Tax Legislation Division at Energy, Mines and Resources Canada ("EMR").

You have informed us that it is your understanding that 24(1) limestone quarry would be a stone quarry, not a calcite quarry, in the context outlined above. Consequently, the references to "stone quarry" in the Act and Regulations and in relevant jurisprudence would be applicable to 24(1) limestone quarry.

Mr. Robert Clarke has indicated that it would be possible for EMR to provide more formal opinion regarding whether the quarry in your case is a stone quarry or a calcite quarry for CCA purposes. They could do this on a rush basis if necessary. If you consider this to be necessary, please contact John Chan as soon as possible.

Primary Crushing Equipment - CCA Classification

Subsections 1104(7) and (8) of the Regulations, as they applied to 1987 taxation years, specifically exclude sand pits, gravel pits and stone quarries from the term "mine", but only for purposes of Classes 12 and 28. There is no such restriction in the description of the terms "income from a mine" and "mine" in subsections 1104(5) and (6) of the Regulations which apply for purposes of Class 10. In any event, these provisions only apply to mineral resources, i.e., they do not apply to industrial mineral deposits which have not been certified pursuant to subparagraph 248(1)(d)(i) of the definition of "mineral resource" in the Act and therefore do not constitute mineral resources. Since the limestone deposit under consideration has not been

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certified as a mineral resource, subsections 1104(5) and (6) of the Regulations do not apply to 24(1) limestone quarry. They, however, do not specifically preclude 24(1) primary crushing equipment from being classified as Class 10(k) property.

Your question concerning whether 24(1) primary crushing equipment is eligible for inclusion in Class 10(k) would therefore depend upon legal precedents, particularly with respect to whether the equipment was acquired for the purpose of gaining or producing income from a mine.

Regarding the meaning of "mine", the Crown argued in the Nomad case that Nomad's front-end loaders used in its sand and gravel pit operation should be included in Class 10(k) because the front-end loaders were acquired for the purpose of gaining or producing income from a mine. The FCTD [[1987] 2 C.T.C. 112] (87 DTC 5343) in this case cited an earlier case, Paju et al. v. MNR, [[1974] C.T.C. 2121] 74 DTC 1087, in which the Tax Review Board held that a gravel pit does not necessarily fall under the definition of a "mine". The FCTD accepted the argument that a sand and gravel pit is not a mine and therefore held that the front- end loaders were Class 22 property. This decision was affirmed by the FCA.

In the Nomad decision, the FCA cited Canadian Gypsum Co. Ltd. v. MNR, [[1965] C.T.C. 210] 65 DTC 5125 (Exch. Ct.) in which the court in that case considered whether an open-pit gypsum operation was a mine in the context of "income derived from the operation of a mine" for purposes of the 3 year tax exemption available at that time. The FCA in Nomad adopted certain principles from the Canadian Gypsum case as follows - see page 5037 of Nomad:

• Three things are worthy from the quotation (from the Canadian Gypsum case). First, the meaning of the word "mine", inter alia, "is by no means fixed and is readily controlled by the context and subject matter." Two, the size of the operation and the skills of those involved was relevant. Three, the Learned Judge would have had difficulty in finding the operation in question to be a mine had it not been for the admission by the Minister that it was not a stone quarry.

In the Canadian Gypsum case, the court held that the open- pit gypsum operation was a mine because, among other things, it was not a stone quarry. The FCA in Nomad stated in its analysis at page 5037 that "the operation here was a gravel pit which is akin to a stone quarry", thereby obtaining support from the Canadian Gypsum case that Nomad's sand and gravel pit is not a mine.

On the basis of the jurisprudence alluded to above and the

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conclusion that 24(1) limestone operation is a stone quarry, it is our view that 24(1) primary crushing equipment would not be classified as Class 10(k) property because 24(1) limestone quarry is not a "mine" for purposes of the provisions of Class 10(k).

From the very brief description of the primary crushing equipment which you have provided, it appears that the purpose of the equipment is crushing rock, not excavating, moving, placing or compacting rock. In this case, the equipment would not be eligible for inclusion in Class 22.

The primary crushing equipment would, however, be eligible for inclusion in Class 8 pursuant to paragraph (i) thereto.

Class 41 and Regulation 1104(7)(a)

As previously mentioned, Regulation 1104(7)(a) stipulates that stone quarries are excluded from the meaning of "mine". For 1987 and prior taxation years, Regulation 1104(7) applied for the purposes of Classes 12 and 28 and did not apply to Class 10. Regulation 1104(7) was amended in 1989 applicable in respect of the 1988 and subsequent taxation years to apply for the purposes of Classes 12, 28 and 41.

Class 41 includes property acquired after 1987 that is, pursuant to subparagraph (b)(i) thereof, property that would otherwise be included in paragraph (k) of Class 10. In respect of the 1988 and subsequent taxation years, it is now clear in legislation that "mine" does not include stone quarries for purposes of classifying property that, but for Class 41, would otherwise be included in Class 10(k). Consequently, the amendment to Regulation 1104(7) made it clear that stone quarries would not be included in "mine" for purposes of Class 10(k).

Industrial Mineral Mine

You asked how 24(1) limestone quarry could be an "industrial mineral mine" for purposes of claiming CCA under paragraph 1100(1)(g) and Schedule V of the Regulations if the limestone quarry is not a mine.

As noted by Finance, the SCC decision in the Avril [[1970] C.T.C. 572] case serves as a legal precedent for treating sand and gravel pits, which as noted in Nomad are akin to stone quarries, as an "industrial mineral mine". In Avril, the SCC held that a sand and gravel pit is an industrial mineral mine even though the sand and gravel pit is not a mine. The finding by the SCC in Avril was also adopted by the FCA in the Nomad case which stated at page 5037 that while sand and gravel may be described as "industrial minerals", that

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does not mean that they come from a "mine" as that term is generally understood.

The SCC in MNR v. MacLean Mining Co. Ltd., [[1970] C.T.C. 264] 70 DTC 6199, has stated that a "mine", insofar as mineral resource mines are concerned, should not be interpreted to mean "a portion of the earth containing mineral deposits", instead, it should be taken to mean " a mining concern taken as a whole, comprising mineral deposits, workings, equipment and machinery, capable of producing ore". The SCC in Avril dismissed applying this meaning to a sand and gravel pit by stating the following at page 6368:

• It must, however, be noted that this (the meaning of "mine" established in Maclean) was based on the context of the specific section under consideration in which subsection 6(a) specifically excludes among other things: "sand and gravel pit".

The FCA in Nomad quoted the following passage from Avril:

...In the context of Schedule E (now Schedule V), it
is apparent that the word "mine" is not taken in its
usual meaning as applied to metal mines but in a
special meaning as part of the expression "industrial
mineral mine". With respect to metal mines, it was
pointed out that "a portion of the earth containing
mineral deposits" was not the usual meaning of the
word mine. Here, it must be noted that the word
"mine" is not in common use to describe a sand and
gravel pit. This is therefore a case where the word
is obviously not taken in the usual sense.

These judgements state that the word "mine" as used in the phrase "industrial mineral mine" is not used in its general context, that being the meaning established in the Maclean case, but rather in a special context that is peculiar only to the term "industrial mineral mine". Consequently, it is not necessary for a mineral operation to be a mine in order for the operation to be an industrial mineral mine for purposes of paragraph 1100(1)(g) and Schedule V of the Regulations.

Section Chief
Resource Industries Section
Manufacturing Industries, Partnerships
and Trusts Division
Rulings Directorate

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