Words and Phrases - "quality"
Seabridge Gold Inc. v British Columbia, 2025 BCSC 558
The taxpayer incurred various pre-feasibility expenses in relation to a large and complex gold-bearing deposit in BC including for engineering services related to the geotechnical stability of rock (relevant to any open pit slope design), modelling of costs of any mine, studies of water management control and of mine waste management and tailings impoundment, underground mine analysis and design, detailed design and operating cost estimates to assess whether the project might potentially be economically viable, geotechnical drilling services and studies regarding access roads and slurry systems.
The “qualified mining exploration expense” definition in s. 25.1(1) of the BC Income Tax Act relevantly referred (like (f) in the Canadian exploration expense definition in ITA s. 66.1(6)) to “the purpose of determining the existence, location, extent or quality of a mineral resource” in B.C. In finding that such expenses so qualified, Maisonville J stated (at para. 146):
An interpretation of the word “quality” that includes economic viability is required by the text, context and purpose of the legislation. Therefore, mineral resource depends not only on the direct physical characteristics of the mineral resource, but also the broad range of factors that inform the economic viability of its extraction. Thus expenses that assist in the determination of the economic viability of a mineral resource are captured under the “quality” term of the purpose test, subject to the limitation that the expenses must be specific to a mineral resource in British Columbia being explored.
9 February 2022 External T.I. 2020-0873931E5 - CEE - Economic Assessments
Regarding whether the test of incurring an expense “for the purpose of determining the existence, location, extent, or quality of a mineral resource” (the “CEE Purpose Test”) would generally include expenses for determining the economic feasibility of a deposit, such as expenses for preparing pre-feasibility or feasibility studies (including expenses for determining the cut-off grade of the deposit), market studies or studies for determining the anticipated long-term price of a mineral, based on an expansive interpretation of the word “quality,” CRA noted:
- “the word ‘quality’ could be capable of an interpretation that either includes the concept of commercial value or that instead focuses more narrowly on the physical or inherent aspects of a particular item
- having regard to the ejusdem generis rule, it was to be noted that “the first three words in the list in the CEE Purpose Test” referred to “the inherent physical characteristics of the mineral resource,” which suggested that the word the word “quality” should be similarly “limited to inherent characteristics of the mineral resource,” so that it “could encompass other inherent characteristics of the mineral resource such as its chemical composition or mechanical properties (e.g., strength or porosity).”
- various materials suggested that the purpose to the provision was “the search for, or discovery of, the minerals in the ground,” and that expenses related to “external factors, for example the cost of bringing a product to purchasers, including marketing and distribution costs … or to the overall assessment of economic viability through a pre-feasibility study or feasibility study, extend well beyond the focused nature of an incentive targeted at the activity of mineral exploration.”
CRA concluded:
[E]xpenses that qualify for CEE do not … include expenses for determining the economic viability of a mineral resource if those expenses do not relate to a determination of the natural (e.g., physical, chemical or mechanical) characteristics of the mineral resource. Such expenses are too remote to be described as expenses incurred for the purpose of determining the “quality” of a resource.