| Feb 28, 1991 | |
| Special Audits Division | Resource Industries |
| E.H. Gauthier | Section |
| John Chan | |
| Attention: S. Lakhani | Tel. 957-9795 |
| Specialized Industries | |
| Section | |
| File No.: 7-902393 |
24(1)
Subject: "Resource Profits" Under Subsection 1204(1) of the Income Tax Regulations (the "Regulations")
Your memorandum dated September 7, 1990 requests our views pertaining to the computation of 24(1)
Background
24(1)
24(1)
10. The amount of the resource allowance which a taxpayer may claim is computed under section 1210 of the Regulations by reference at subparagraph 1210(1)(a)(i) thereof to, inter alia,
"(i) his resource profits for the year (within the meaning assigned by subsection 1204(1) if that subsection were read without reference to paragraph (a) or subparagraph (b)(iv) thereof...".
11. Without restating the Regulation 1204(1) definition of resource profits as modified by Regulation 1210(1)(a)(i), the portions of the definition which are relevant to 24(1) are
1204(1) For the purposes of this Part, "resource profits" of a taxpayer for a taxation year means the amount, if any, by which
(b) the amount, if any, of the aggregate of his incomes for the year from
(ii) the production and processing in Canada of
(A) ore, other than iron or tar sands ore, from mineral resources in Canada operated by him to any stage that is not beyond the prime metal stage or its equivalent, exceeds
(c) the aggregate of his losses for the year from the sources described in paragraph (b)
computed in accordance with the Act, on the assumption that he had during the year no incomes or losses except from those sources.
24(1)
EMR
13. Detailed descriptions of 24(1) were submitted to EMR which, after several consultations with officials from both 24(1) and Revenue Canada, Taxation (the"Department"), provided written opinions dated April 27, 1987, December 19, 1988 and July 20, 1990
14. EMR opined that for purposes of the Income Tax Act (the "Act") and the Regulations where the term "prime metal stage" occurs 24(1) 24(1) are at the prime metal stage whereas 24(1) are beyond the prime metal stage.
15. EMR further stated that the process of: 24(1)
respectively is a manufacturing and processing operation and that profits derived therefrom would be "Canadian manufacturing and processing profits" as this term is defined at paragraph 125.1(3)(a) of the Act, not resource profits under Regulation 1204.
16. Subsection 1206(1) of the Regulations provides interpretations of terms used in Part XII of the Regulations and states:
"ore" includes ore from a mineral resource that has been processed to any stage that is prior to the prime metal stage or its equivalent.
17. EMR referred to the above interpretation of "ore" and opined that since 24(1) these products are not ore because they are not at a stage that is prior to the prime metal stage. Thus, they concluded that 24(1) could not constitute "ore" for purposes of clause 1204(1)(b)(ii)(A) of the Regulations and hence the income from the sale of 24(1) 24(1) would not qualify for resource profits.
Discussion
18. Having regard to EMR's opinion that 24(1) we do not dispute their conclusion that these products do not fall within the ambit of clause 1204(1)(b)(ii)(A) of the Regulations.
24(1)
24(1)
26. In Gulf Canada Limited v. The Queen, F.C.T.D., October 25, 1990, under appeal, McNair, J. considered whether certain deductions in computing income were required to be deducted in computing taxable production profits from a mineral resource in Canada under subsection 124.1(1) of the Act (now repealed). This subsection was relevant for computing a taxpayer's tax abatement under subsection 124(2) of the Act. This abatement was withdrawn in the June 23, 1975 budget and the resource allowance was introduced at the same time. The definition of "resource profits" in Regulation 1204(1) is very similar to the definition of "taxable production profits" in subsection 124.1(1) of the Act.
27. McNair, J. stated in his analysis that
"I am satisfied to accept the submissions of plaintiff's counsel on this issue, namely, that sections 124.1 and 124.2 are much more specific in their scope and intendment than the calculation of income provisions under section 3 of the Act, in requiring that the income and deductions be related to production in the sense of extraction from the ground as the source of income."
McNair, J, further stated that, in his view, the calculation of taxable production profits is independent of the calculation of income for purposes of section 3 of the Act.
Your Question
Your question, in summary, is as follows:
24(1)
Our Comments
21(1)(b)
Other
24(1)
24(1)
24(1)
If you have any further questions or comments, please contact the writer.
DirectorBilingual Services and Resource Industries DivisionRulings Directorate