5-913462
24(1) B. Rankin
(613) 957-8974
Attention: 19(1)
May 13, 1992
Dear Sirs:
Re: Mine Closure Costs
This is in reply to your letter dated December 9, 1991 requesting our views related to the treatment for reclamation costs and employee termination costs that are directly related to and incurred by a corporation with respect to the closing of a Canadian mine.
We understand that your question relates to mine reclamation and employee termination costs that could be paid over a number of years. We also understand that you are interested in whether any distinction can be made for the treatment of these costs if the closure affects only one of a number of active mines owned and operated by the corporation, if the closure involves the company's only mine, or if the closure affects the company's only mine but it continues making grass root and mine development expenditures at other locations in Canada.
While we do not have detailed information concerning all matters which may be relevant to the tax treatment for the expenditures, we hope the following general comments are of assistance.
The appropriate treatment for mine reclamation and employee termination costs as described in your letter will be a question determined based on the facts and circumstances that are applicable to the individual mine and the particular expenditures. In our view, mine reclamation and employee termination costs that are reasonable in nature and amount will most frequently qualify as operating expenses for the period they are incurred.
The fact that the particular mine to which these costs are related has been closed will not in and by itself require that the amounts be treated as capital as the expenditures would generally be viewed as having been made in the course of conducting the mining activity. It can also be said that the fact that the mine was the only operating property that was owned by the company will not necessarily have a bearing on the treatment for the closing costs. We should emphasize that this general statement is made presuming that the requirements of paragraph 18(1)(a) of the Act are satisfied.
While we trust that our comments are of assistance to you, we should advise that they do not constitute an advance income tax ruling and are accordingly not binding on the Department.
Yours truly,
A/DirectorManufacturing Industries, Partnerships and Trusts DivisionRulings Directorate