A W Prociuk (orally):—The appellant claimed a depletion allowance of 33 /3% of its production profits in producing barite during the years 1966 to 1969 inclusive, pursuant to paragraph 11(1)(b) of the Income Tax Act and section 1201 of the Income Tax Regulations. By Notice of Assessment dated December 22, 1970 the Minister disallowed the claim and the appellant has appealed therefrom.
The appellant was incorporated under the laws of Canada on April 1, 1952, and is a wholly-owned subsidiary of Baroid N L Industries. I gathered from the evidence that its principal business is the manufacture and sale of drilling mud, of which the main ingredient is barite.
In September 1960 the appellant purchased a mine consisting of some 46 claims, including all improvements thereon, located some 8 miles from the Town of Spillamacheen, BC from Giant Mascot Mines for $155,000. Prior to this date Giant Mascot Mines operated the mine producing lead, zinc and silver. Their operation included mining the ore, crushing it to sand and then removing therefrom lead, zinc and silver by a flotation method. The waste product, being in the form of sand known as tailings flowed in an open ditch to a tailings impoundment area and the clear water therefrom was drained away. This area of about 10 acres eventually accumulated tailings from several inches to several feet in thickness and represented a large supply of easily available barite concentrates. The mine itself contains barite ore which would require underground workings.
The appellant, having acquired this property, began to extract barite from the tailings by a further process using a tilt and shake table. When the barite was removed it was stockpiled for shipment, and the waste once again was channelled to another area. The point to resolve is whether or not this processing of barite from the tailings qualifies the appellant for a depletion allowance. In this connection, regard must be had to section 11 of the Act and the pertinent section of the Regulations. Subsection 11(1) reads:
11. (1) Notwithstanding paragraphs (a), (b) and (h) of subsection (1) of section 12, the following amounts may be deducted in computing the income of a taxpayer for a taxation year:
(b) such amount as an allowance in respect of an oil or gas well, mine or timber limit, if any, as is allowed to the taxpayer by regulation;
Section 1200 of the Regulations reads:
1200. For the purpose of paragraph (b) of subsection (1) of section 11 of the Act there may be deducted in computing the income of a taxpayer for a taxation year amounts determined as hereinafter set forth in this Part.
Section 1201 of the Regulations is entitled “Deductions Allowed to Operators”, and reads:
1201. (1) for the purpose of this Part,
(a) “resource” means
(i) an oil or gas well,
(ii) a bituminous sands deposit,
(iii) a base or precious metal mine, or
(iv) a mineral deposit in respect of which
(A) the Minister of Energy, Mines and Resources has certified that the principal mineral extracted is an industrial mineral contained in a non-bedded deposit,
(B) the principal mineral extracted is sylvite,
(C) the principal mineral extracted is halite and it is extracted by underground mining and not by operating a brine well,
(D) the principal mineral extracted is silica and it is extracted from sandstone or quartzite, or
(E) the principal mineral extracted is gypsum; .. . .
It is apparent from the definition that tailings would have to be classified as a resource before the appellant could succeed in its appeal.
Learned counsel for the appellant ably argued that, notwithstanding the fact that tailings was a man-made mineral deposit above the surface, it nevertheless contained raw barite which was extracted therefrom and therefore was a resource.
Giving it the widest and the most liberal interpretation I cannot read into the definition that a pile of tailings would constitute a non-bedded deposit and thereby be a resource within the meaning of section 1201 of the Regulations. If it were otherwise, then each processing of the remaining waste products would similarly qualify, and that surely is not the purpose nor the intent of this section of the Regulations. The case naturally would be entirely different if it were a case of actual mining and thereafter processing raw barite ore. Accordingly, the appeal is dismissed.
Appeal dismissed.