| Director General | |
| Tax Policy Analysis Division | File No. 5-8556 |
| Energy, Mines & Resources Canada | G.R. White |
| Room 706, 580 Booth Street | 957-8585 |
| Ottawa, Ontario | |
| K1A 0E4 |
Attention: Mr. Donald G. Schell Director Mining Tax Legislation Interpretation Division
October 16, 1989
Dear Sirs:
Re: The meaning of "the Prime metal stage or its equivalent" Computation of resource profits, subsection 1204(1) of the Income Tax Regulations
We are writing to request your comments on a letter from 19(1) to our Vancouver District Office in which they ask a number of questions dealing with at what time the prime metal stage of a particular ore is reached when there is a series of commercial products or byproducts produced therefrom.
The Vancouver District Office has apparently mentioned to 19(1) that the stage of normal commercial purity of the ore is one of the criteria the department uses in making the determination of whether something is at the prime metal stage or its equivalent. They have stated that this is the stage where customers normally accept a product and where there is usually more commercial trade than at any other. It is our understanding, this criteria is generally used for non- metallic minerals and may not be appropriate in all instances.
In the case at issue, 19(1) has framed its questions in the context of processing bauxite ore where there is a series of commercial products arising in the processing of such ore into aluminum ingots. 19(1) has asked the following questions on which we request your comments on:
1. In general, is the prime metal stage for any ore a question of fact to be determined by the quantity of sales of a product arising in the processing of that ore, or is it purely a matter of industry practice which determines the issue?
2. In the aluminum industry, is the "alumina stage", which arises in the production and processing of bauxite ore, ignored in determining the "prime metal stage or its equivalent" of bauxite since it is the generally accepted practice of the industry to process such alumina to the "aluminum ingot stage", the prime metal stage of bauxite ore - notwithstanding that such alumina may be commercially transacted at the former stage without undergoing any further processing?
3. Does the answer to question 2 turn on whether a particular taxpayer processes and sells alumina as a primary product with say only a portion of the alumina processed further by him and sold as aluminum ingots, i.e. can the "prime metal stage" of a specific ore bauxite - change as between taxpayers or is it constant once industry usage as a whole is established?
Attached is a copy of the 19(1) letter to the Vancouver District Office. If anything further is needed 19(1) has requested that you call them direct.
Yours truly,
C. Gouin-ToussaintDirectorBilingual Services and ResourceIndustries DivisionRulings Directorate