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.
CURRENT AMENDMENTS
DATE January 7, 1987
FROM - Rulings Directorate Resource Industries Section Allan B. Nelson 957-4363
ATTENTION
C.D. McDonald Director General
RE: Renounced Canadian Exploration Expenses (C.E.E.) and Mining Exploration Depletion
We presently have two advance ruling requests asking us to rule favourably that no deduction need be made pursuant to subparagraph 1203(2)(a)(ii) of the Regulations with respect to any assistance that a corporation has received, is entitled to receive or may reasonably be expected to receive at any time that is pursuant to paragraph 66(12.6)(a) of the Tax Act required to be taken into account to determine the amount of any such expense that is deemed to be incurred by the Partnership pursuant to paragraph 66(12.61)(a).
New subsection 66(12.6) allows a corporation, in certain situations, to renounce C.E.E., net of assistance, to a person who has given consideration under an agreement to a corporation for the issue of a flow through share of the corporation. On the effective date of such a renunciation, paragraph 66(12.61)(a) deems the CEE that was renounced to be CEE incurred by the particular person. This same amount is added to their mining exploration depletion base by virtue of Regulation 1203(2)(a)(i). Thereafter, Regulation 1203(2)(a)(ii) reduces the person's mining exploration depletion base by the aggregate of all amounts of assistance or benefits that any person has received, is entitled to receive or at any time becomes entitled to receive in respect of an expense described in subparagraph (i).
In a simplistic example where an investor pays $1,000,000 to acquire flow-through shares of a corporation, the corporation incurs $1,000,000 of CEE and receives assistance of $50,000 related to that CEE, the result is the corporation is only able to renounce $950,000 to the investors (i.e. CEE incurred net of assistance). The investor's mining exploration depletion base is then reduced by the same amount of assistance (i.e. $950,000 minus $50,000 = $900,000 X 33 1/3%). Therefore, in calculating the mining exploration depletion base the legislation requires a double grind for the same amount of assistance received or receivable.
To remedy the situation, assuming the above results were not intended, it is our view that a change to the legislation is required.
Considering that we have two ruling requests outstanding on this issue we would appreciate receiving your comments in this regard possible as soon as possible.
Original Signed by
Director General Rulings Directorate Legislative and Intergovernmental Affairs Branch
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