Section 66.1

The word "taxpayer" in subsection 66.1(9) and in paragraph (e) of the definition of CEE should be interpreted as referring only to a partner of a partnership and not to the partnership, whereas in order to determine whether a partnership has incurred expenses referred to in paragraphs (a) to (e) of the definition of CDE in its fiscal period, the word "taxpayer" in the preamble of the definition and in paragraphs (a) to (e) of the definition should be read as referring to the partnership.

underline;">: History. A former producing mine in the Concession, which was the only workings capable of producing ore, has since been abandoned and is inactive. Surface facilities were dismantled and removed, and the underground workings were flooded and permanent concrete caps were installed sealing all shafts. The Corporation completed an initial public offering and acquired an interest in the property.

Exploration program

The Corporation will undertake a gold exploration and mineral evaluation program, and will conduct an evaluation of the mineral resource in the Concession in order to determine the extent and quality of the mineral resource. In order to further determine or to estimate further the extent and quality of the XX and other ore zones in the Concession, the Corporation will utilize the data from drill holes that were previously drilled by previous owners of the mine and from drill core assays. The results at each stage will determine the next steps, including the appropriate drilling program to undertake on the Concession, such as confirmation drilling, a diamond drill program on surrounding areas of the XX, and metallurgical testing on future drill holes.

Ruling

: "The XX will not be a mine in a mineral resource that has come into production in reasonable commercial quantities for the purpose of subparagraph (f)(vi) of the definition ‘Canadian exploration expense'."

A principal business corporation ("C Co.") plans to engage in an extensive surface exploration program to evaluate several prospective geological fomrations located near an underground mine of C Co. which had been fully shut down and is on care and maintenance. If these new zones were to be developed through underground methods, new workings would need to be contructed. Although certain of the surface facilites at the former mine would be used to support the exploration program, "the surface facilitiews will not be an integrted part of the Exploration Program."

Ruling that expenses of the proposed exploration program will qualify as CEE under para. (f) subject to the various specific statutory exclusions and provided further that any "surface exploration expenses incurred for activities undertaken in the area that is less than X [likely 1.2 km. from the mine shaft per the issue summary] from the Former Mine will not qualify as CEE...."

After an underground mine had been in commercial production, it was placed on care and maintenance, and broken ore and mining equipment were hoisted out of the mine before it was flooded. A proposed underground exploration program would involve de-watering the existing mine shaft and using that shaft to bring in equipment and personnel to carry out underground drilling. If the drilling was successful, the existing shaft would be deepened and utilized to extract the ore, and surface facilities would be reactivated.

The mine had not lost its characteristics of a mine since being closed, so that the underground exploration program related to what was hoped to be a mining operation that would be conducted by way of an extension of the mine. Accordingly, the exploration expenditures would not qualify under (f) or (g).

A proposed development program would be considered to constitute an extension of an existing mine (which had gone out of production but had been kept on care and maintenance) given that the ore would be hoisted to the surface using the existing shaft, crusher, loading pocket, hoist and head frame, the miners would access the working faces via the existing shaft and the existing mill and mine offices would be part of the surface infrastructure that would be necessary for the company to carry out the planned operations.

Proposed exploration that was adjacent to what had been a mine would qualify as CEE (and the area if brought into production would qualify as a new mine for purposes of paragraph (g)) given that the connections between the new area and the old area (including a drift that provided fresh air ventilation) did not have substantial economic utility to the new area.

The costs of a proposed exploration and development program that would target zones that would eventually be accessed by extending the existing underground workings of a mine that had been in commercial production but that was now on care and maintenance (without having been abandoned), would not qualify as CEE.

Ruling that a proposed mine will be a new mine and that development work, bulk sample testing and drilling to confirm a threshold mineral resource, to assess the commercial suitability of the ore and to establish appropriate mining methods will qualify as CEE within the meaning of paragraph (f).

Once a mineral deposit is certified pursuant to paragraph (d)(i) of the definition of "mineral resource" in s. 248(1), the deposit will be considered to be a mineral resource for the purposes of determining a taxpayer's CEE, notwithstanding that the expenses may have been incurred prior to the date of certification.

"Generally, our position on feasibility studies is that they are too remote from activities undertaken to actually determine the existence, location, extent or quality of a mineral resource in Canada to qualify as CEE under subparagraph 66.1(6)(a)(iii) if they are undertaken to determine whether to proceed with the development of a mine."

A mine to be developed close to an existing mine (the C Mine) is ruled to be a new mine within a mineral resource in Canada for purposes of s. (g) of the CEE definition in s. 66.1(6) notwithstanding that a mine access ramp in the C Mine will provide early access to the new deposit, provide diamond drill platforms to access and facilitate exploration, establish initial ventilation for further underground excavation at the new site and provide access to the mining crew for the new mine until its production shaft becomes operational.

"It is our view that expenses that do not meet the purpose test in paragraph (f) of the definition of Canadian exploration expense will only be eligible to be included in paragraph (g) of that definition if they are incurred for the purpose of bringing the mine into production in reasonable commercial quantities. In other words, the expenses must be incurred after the decision has been made to proceed with bringing a new mine into production in reasonable commercial quantities. Expenses incurred in order to determine the economic feasibility of whether or not to proceed with developing a new mine, or that are related to the processing or sale of the mineral, do not, in our view, satisfy the purpose test in either of paragraph (f) or (g) ... [I]t is our view that those expenses related to the metallurgical tests on the bulk sample to confirm the nil flow sheet and the recovery rate, as well as to the sample that will be sent to potential customers to establish the marketability of the Concentrate are ineligible ..."

As expenses incurred prior to a decision having been made to proceed with a particular mining project do not satisfy the test in (g), environmental assessment expenses incurred as part of a feasibility study to determine whether or not to proceed with the relevant mining project did not satisfy the test. Furthermore, environmental assessment expenses incurred after a decision had been made to proceed with a relevant mining project and which were incurred in order to obtain a government lease of the property would constitute part of the cost of the lease and, therefore, would constitute CDE under paragraph (e) of the definition thereof in s. 66.2(5).

"The nature and type of expenses contemplated by paragraph (g) of the definition of CEE are mine development expenses incurred after the decision has been made to proceed with mine development. In other words, expenses incurred to determine whether to proceed with the development of a mine would not be encompassed by that paragraph. Where a PBC incurs an expense partly for the purpose described in paragraph (f) to the definition of CEE and partly for the purpose described in paragraph (g) to that definition, the Agency will accept a reasonable allocation of such expenses between those paragraphs as determined from the circumstances of the particular situation."

In an arm's length sale, the corporate "Vendor" disposes of the "Property" (including land options agreements, permits, engineering data and technical and environmental reports) acquired in the development phase of a proposed wind turbine farm. The proceeds allocated to the Property's disposition will be deducted from the Vendor's cumulative Canadian exploration expense ("cumulative CEE") pool, and any remaining proceeds will be considered to relate to goodwill. CRA stated:

Paragraph (g.1) of the definition "Canadian exploration expense" in subsection 66.1(6) … includes CRCE. Since the Vendor will dispose of the Property, the cost of which was originally eligible as CEE, the amount that becomes receivable to the Vendor will be subject to the provisions of paragraph 66(12.1)(a) and will reduce the Vendor's cumulative CEE balance under element "G" of the definition under subsection 66.1(6). The negative pool balance will be included in income under subsection 59(3.2).

The use of a partnership for the purpose of "warehousing" resource expenditures was offensive in policy terms and, accordingly, RC was unwilling to confirm its position that CEE and CDE incurred by the partnership will be considered to be incurred by the partners at the end of the partnership's fiscal period.

CEE and CDE incurred by a partner pursuant to ss.66.1(6)(a)(iv) and 66.2(5)(a)(iv) is treated as being incurred by the partner at the end of the fiscal period of the partnership.