Regulation 1206

Subsection 1206(1)

Canadian exploration and development overhead expense

Administrative Policy

8 December 2015 External T.I. 2015-0616321E5 F - CEE - Severance pay

exclusion of severance payment

Would a severance payment made by the taxpayer to an employee who performed services on exploration projects (but whose duties were not all or substantially all directed towards exploration or development activities) be part of the taxpayer’s Canadian exploration and development overhead expenses as per Reg. 1206(1)? CRA stated (TaxInterpretations translation):

Salary costs for time devoted by an employee to functions which are all directed on exploration activities in Canada described in the CEE definition ... would be included as CEE. However, the CRA position is that a severance payment is an expense made by the corporation at the time of cessation of employment and does not constitute an amount paid for services rendered. Consequently, it is not possible to establish a link between the expense and the exploration work carried out. Thus, such a severance payment would not be included in CEE.

After noting that the same position applied to CDE, CRA stated:

The preamble to the definition of CEDOE ... indicates that CEDOE means CEE or CDE (other than as excluded in the preamble). Thus, where an employee’s time is not devoted at least 90% to eligible exploration activities in Canada, the portion of the wages, salary or other remuneration or related benefits which is eligible as CEE or CDE forms part of CEDOE... . Consequently, as a severance payment is not included in CEE or CDE, it would also not be included in CEDOE by reason inter alia of the preamble to such definition.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 66.1 - Subsection 66.1(6) - Canadian exploration expense - Paragraph (a) severance payment not includible in CEE 151

Production Royalty

Administrative Policy

91 CPTJ - Q.26

RC will consider a net profits interest to be a production royalty where the recipient has a Crown royalty and it is reasonable to consider that the recipient would have had the Crown royalty if its only source of income had been a net profits interest.

Resource Activity

Administrative Policy

17 July 1997 Internal T.I. 7-970054 -

The disposal of machinery held in an inactive mining business would be considered as "activities that the taxpayer undertakes as a consequence of" the mine production/processing operation.

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