The effect of subsection 123(2) is that the jurisdiction for Division II tax extends beyond the territorial sea (i.e., 12-mile nautical limit) to 200 nautical miles, but only for the specific resource related purposes set out in the subsection, that is, activities related to mineral exploration and exploitation, and not other activities, such as fishing or fish processing.
Steven K. D'Arcy, "What is 'Canada'?", Canadian GST Monitor, August 2001 Number 155, p.1
CCRA... states in Policy Statement P-152R that "Canada" includes its land territory, its internal waters and a belt of sea adjacent to its coast, described as the territorial sea. The territorial sea extends 12 nautical miles from Canada's land territory, subject to international boundaries (e.g., Canada and the United States, and Canada and the islands of St. Pierre and Miquelon). Canada also includes the air space above its land territory and over its internal waters, and the air space over the territorial sea as well as the bed and subsoil of the territorial sea. This would appear to be the correct interpretation of the word since it is generally accepted that under international law, the territory of a state is three-dimensional: it consists of the surface, subsurface and a column of air to an as yet undetermined altitude, coinciding with that state's land and sea boundaries. In addition, Article 1 of the Chicago Convention on International Civil Aviation ((1944), 15 U.N.T.S. 295; Canada was and continues to be a party to the convention) provides that "the contracting States recognize that every State has complete and exclusive sovereignty over the airspace above its territory". The effect of the above is that any taxable supplies made in mines below the surface of Canada are taxable. In addition, the sale of a soft drink on a flight from Calgary to Halifax would be taxable. (Administratively, the CCRA does not tax the supply of property on international flights between two non-Canadian cities that happen to occur when the flight is over Canada.)
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