Corporation X, which is a principal-business corporation, issues a flow-through share under a written agreement entered into on December 31, 2012, renounces its Canadian exploration expenses under the look-back rule and enters into a written agreement dated June 20, 2013 with a subcontractor for the incurring of pre-production mine development expenses, with the work (entailing payments of Corporation X of $2 million) ending on December 31, 2013. What date should be considered in determining whether the expenses incurred are CEE or Canadian development expense ("CDE")?
After first noting that as the expenses were incurred after June 20, 2013, they did not qualify as CEE in paragraph (g) of the definition, CRA stated:
[I]f the written agreement described in paragraph (g.3) of the definition of CEE in subsection 66.1(6) is the written agreement (dated December 31, 2012) for the issuance of a flow-through share, the $2 million expense could be considered CEE by virtue of paragraph (g.3) of the definition of CEE in subsection 66.1(6) because the expenses are incurred before 2017. If the written agreement described in paragraph (g.3) of the definition of CEE in subsection 66.1(6) is the written agreement with the subcontractor, 100% of the $2 million expenditure would qualify as a CEE under paragraph (g.4) of the definition of CEE in subsection 66.1(6) because the expenses are incurred before 2015.
Thus, since the expenses in the amount of $2 million were incurred by Corporation X after June 20, 2013 but before 2015 and are eligible pre-production mine development expenses, the expenses paid by Corporation X to the subcontractor are considered to be CEE.