Regulation 1206 - Interpretation

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 157

Paragraph (b)

See Also

Ressources Eastmain Inc. v. Agence du revenu du Québec, 2021 QCCQ 4379

as a junior exploration company’s CEO devoted "substantially all" (75%) of his time to exploration, his salary was not CEDOE

The taxpayer was a micro-cap junior exploration company devoted to two projects in northern Quebec. For the four taxation years in issue (2007 to 2010), it claimed between 49% and 71% of the remuneration of its president and CEO (“Robinson”) as Canadian exploration expense that was eligible for Quebec exploration credits. The correctness of this claim turned principally on whether under paragraph (b) of the definition of “Canadian exploration and development overhead expense” (contained in s. 360R2 of the Quebec regulations, and essentially the same as the corresponding federal definition in Reg. 1206(1)) his remuneration was not “in respect of a person employed by the taxpayer whose duties were not all or substantially all related to exploration or development activities.”

Fournier JCQ accepted (at paras. 250, 269) that Robinson devoted approximately 75% of his time to exploration activities, and only the balance of his time to such matters as investor relations and attending board meetings. After reviewing the jurisprudence on “all or substantially all,” he stated (at paras. 239-240, TaxInterpretations translation):

This review of the case law thus allows us to conclude that the expression "substantially all" does not lend itself to the use of a simple mathematical formula and should not be interpreted as corresponding to a given proportion of a whole established in an arbitrary manner.

On the contrary, the phrase is somewhat "elastic" and the meaning to be given to it must take into account the circumstances and context in which it is applied.

Accordingly, the claimed salary amounts qualified for the credits. The balance of his salary was not so eligible because it had not been claimed on a timely basis in the prescribed form.

Words and Phrases
substantially all
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(b) - Capital Expenditure v. Expense - Current expense vs. capital acquisition annual expenditures on core sample boxes and racks were capital expenditures, whereas those on dirt berms were currently deductible 302
Tax Topics - Income Tax Act - Section 66.1 - Subsection 66.1(6) - Canadian exploration expense - Paragraph (k.1) annual expenditures on core sample boxes and racks were excluded under para. (k.1) 105
Tax Topics - Income Tax Act - Section 66.1 - Subsection 66.1(6) - Canadian exploration expense - Paragraph (f) geology course for an employee was necessary to exploration and resource identification 173

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. 9700547 - DEDUCTION OF TERMINAL LOSS FROM RESOURCE PROFITS

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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