| Director General | |
| Economic and Financial | |
| Policy Analysis Branch | |
| Energy Mines and Resources, Canada | |
| 460 O'Connor Street | G.R. White |
| Ottawa, Ontario | 957-8585 |
| KlA 5H3 |
Attention: Mr Donald G. Schell Director Mining Tax Legislation Interpretation Division
January 12, 1990
Dear Sirs:
Re: 24(1)
We are writing to request your opinion concerning the prime metal stage or its equivalent for potash and where that stage is reached at the 24(1) known as the 24(1)
This point of demarcation is relevant for the determination of whether the loadout facility and/or the onsite storage building, referred to in the attached enclosures, constitutes qualified property as defined is subsection 127(9) of the Income Tax Act (the "Act") which would be eligible for investment tax credit ("ITC").
For an explanation of the background in this case reference is made to the attachments received from our Toronto District Office.
Opinions Requested
1. What is the prime metal stage or its equivalent for potash? Is it the same for every producer?
2. Are the loadout facilities and the onsite storage building, at the 24(1) assets used in processing potash to a stage that is not beyond the prime metal stage or its equivalent for the purposes of the subparagraph 127(9)(c)(iv) definition of qualified property?
In responding to this query we note that subparagraph 127(11)(b)(i) of the Act excludes storing, shipping, selling and leasing of finished goods from paragraph (c) of the definition of qualified property.
Paragraph 31 of Interpretation Bulletin 145R commenting on these restrictions states:
"If a good can be sold in bulk, but is packaged for the convenience of making the sale or because the taxpayer can receive a higher price if the product is placed in packages, it will generally be considered to be a finished good before packaging takes place. However, a homogenous product which in the usual case must be broken from bulk and packaged before it is capable of sale is generally not considered to be a finished good until after the time, it is packaged". (Underlining added)
The key phrase of this statement for our purposes would appear to be "capable of sale".
Therefore, we also request your opinion as to what stage in the loadout process the potash becomes "capable of sale" for purposes of determining whether or not it is a finished good. Is the final dedust process tantamount to packaging a product before it is capable of sale, or is the product capable of sale before dedusting, or before the addition of anticaking oil, or even before sizing? We would also need to know whether potash is generally sold in a certain processed state even though it may be capable of being sold in that certain way.
3. For the purposes of the definition of qualified property in subparagraph 127(9)(c)(iv) of the Act, would "prime metal stage" be synonymous with "finished goods" as referred to in subparagraph 127(11)(b)(i) of the Act?
4. In your opinion, would a better view be that sizing, anticaking and dedust expenses are not processing expenses as the taxpayer claims but are shipping or selling expenses?
Despite the fact that the taxpayer's position is that the potash is not a finished product in either the loadout facility or the onsite storage building, it is noted the taxpayer refers to anticaking amine as providing a moisture occluding film on the finished products and dedusting oil as used to suppress dust present in the finished products.(Exhibit IV).
Attached is all the information received from the Toronto District Office. Authorization has been obtained from 24(1) to refer this matter to you.
Yours truly,
Director GeneralRulings DirectorateLegislative and IntergovernmentalAffairs Branch