J.C. Clark (613) 593-6201
June 20, 1983
Dear Sirs:
Re: The Income Tax Act (Canada) (the "Act") Status of a processor of ores and concentrates
This is in reply to your letter of May 10, 1983 in which you requested our comments on your interpretation of the Act's application to the following case:
A corporation owns an ore concentrator but no mine. Its activities consist of processing ore from one or more mines and processing concentrates for an agreed fee per ton. There is no relationship between the processor and the mine owner. The concentrate is sold on behalf of the mine.
You believe that the corporation in question earns resource profits as that term is defined in subsection 1204(1) of the Regulations to the Act (the "Regulations"), and that:
(1) the assets described belong to class 28;
(2) the resource allowance prescribed under section 1210 of the Regulations is deductible;
(3) the earned depletion allowance prescribed under section 1201 of the Regulations is deductible; and,
(4) the rate of taxation in 1983 is 362, not including the 2.5% surtax.
We agree that profits earned by the corporation should be included in resource profits by virtue of subparagraph 1204(1)(b)(iii) of the Regulations, to the extent that they relate to the processing in Canada of ore from mineral resources in Canada not operated by the corporation to any stage that is not beyond the prime metal stage or its equivalent.
Our comments on your other interpretations of the Act and Regulations are as follows:
(1) We do not agree that the assets described should be included in class 28. In our opinion, provided the concentrator was acquired after May 8, 1972, it should be included in class 10 by virtue of paragraph (k) of that class and the extended definition of the term "...income from a mine..." for purposes of class 10 which is set out in subsection 1104(6) of the Regulations.
(2) In our opinion, the resource allowance is deductible to the extent allowed by section 1210 of the Regulations.
(3) The earned depletion allowance prescribed under section 1201 of the Regulations is deductible to the extent permitted by that section, by virtue of the inclusion of the concentrator in the taxpayer's earned depletion base pursuant to paragraph 1205(b) of the Regulations.
(4) Paragraph 123(e) of the Act provides that the applicable rate of Part I federal tax for taxation years after 1975 is 46% reduced by 10% for income earned in a province, pursuant to subsection 124(1) of the Act. This rate is subject to changes to reflect any applicable surtax, adjustments or credits.
Yours truly,
for Director General Corpoate Rulings Directorate Legislation Branch
JC/klg