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 6, 1984
André Dulude (613) 993-6201
Dear Sirs:
Re: Canadian Exploration and Development Overhead Expense
As requested, we offer you our interpretation of the definition of Canadian exploration and development overhead expense ("CEDOE") in the context of a hypothetical junior mining corporation ("the corporation") whose only activity is exploration and development of Canadian mining properties.
You have outlined a situation where the corporation has certain head office personnel who spend almost all their time on matters relating to exploration and development as this is the only activity of the corporation. For instance a payroll accountant would be servicing the needs of the employees who are directly carrying out the exploration work. The President of the company spends all his time in managing the exploration activities of the corporation. In other words, you have assumed that the duties of the head office personnel are all or substantially all directed towards exploration and development activities.
Based on our understanding of the facts outlined above we provide you with the following comments:
A. The expression "in respect of ... management ... of the taxpayer" contained in paragraph (a) of the definition of CEDOE included in subsection 1206(1) of the Income Tax Regulations is, in our view, broad enough to include all the salary of the President of the corporation.
B. Our interpretation of paragraph (b) of the CEDOE's definition is that it includes all salary, wages or other remuneration or related benefits to the extent that they are paid in respect of duties which are not, at least in the proportion of 90%, an integral and essential part of exploration and development activities. In the case of "a payroll accountant", we would need to analyze the duties performed and apply the test referred to here above before we could express an opinion on whether the salary is included in CEDOE. This applies also for the rest of the head office personnel.
Yours truly, Chief Mines, Oil & Forest Industries Section Specialty Corporations Rulings Division Corporate Rulings Directorate Legislation Branch
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