DATE July 19, 1984
ST. JOHN'S DISTRICT OFFICE
Attention Derwin Banks Audit Division
RE: Mineral Holdings Impost Act of Newfoundland
FROM - HEAD OFFICE Corporate Rulings Directorate D. Lanos REF: 7-3401 Tel: (613) 993-6201
This is in reply to your memorandum of May 14, 1984 and the letter of the same date received by you from XXXX. We have reviewed our memorandum of February 14, 1984. We confirm the view that amounts paid under the Mineral Holdings Impost Act of Newfoundland (the "Impost Act") are specifically disallowed by the provisions of paragraph 18(1)(m) of the Income Tax Act (the "Act").
Our reasoning is as follows:
1. The amounts prohibited by paragraph 18(1)(m) of the Act as a deduction in computing the income of a taxpayer from a business or property include taxes (other than municipal or school taxes) paid to a provincial government. However, certain "prescribed amounts" are specifically excepted from these provisions.
2. The impost levied under Newfoundland's Impost Act is a tax levied by the Province of Newfoundland (the "Province") upon the mineral holding (as defined by paragraph 2(g) of the Impost Act) which an owner has acquired directly or indirectly from that Province and which he has failed to develop as required but which he has chosen not to surrender back to the Province. Therefore, the impost is in our view for purposes of paragraph 18(1)(m) of the Act a tax that may reasonably be regarded as being in relation to the development or ownership of a Canadian resource property.
3. Section 1211 of the Income Tax Regulations (the "Regulations") sets forth the amounts that are prescribed amounts for purposes of paragraph 18(1)(m) of the Act and as such are excluded from its provisions. In our view, the impost levied under Newfoundland's Impost Act is not a "prescribed amount" within the meaning of section 1211 of the Regulations.
Since we consider that paragraph 18(1)(m) applies in the above circumstances, it is not necessary to explore the alternative treatments raised in your second question.
With regard to the arguments posed by XXXX, in his letter of May 14, 1984 in respect of mineral resources, it is our view that the mineral rights in land granted to a taxpayer by the Province are rights to, or interests in, minerals in a mineral resource in Canada and as such qualify as a Canadian resource property within subparagraph 66(15)(c)(vii) of the Act. We fail to see how XXXX can argue that the properties held by his clients are not mineral resources as defined by subsection 248(1) of the Act when in fact Newfoundland has levied an impost upon his clients for failing to do the development work which would establish their existence or non-existence. In addition, an interpretation of clause 66(15)(c)(ii)(B) in the manner outlined by XXXX would render that provision meaningless in some contexts and is not acceptable to us. Finally, it is our view that a tax or impost levied as a punitive measure for non-development of properties is nevertheless levied in respect of ownership of the property for purposes of subparagraph 18(1)(m)(iv) of the Act.
We hope you will find the foregoing helpful. If you require any further information, please contact us. We believe the above detailed explanation should satisfy the taxpayer's needs and that further discussion via the requested conference telephone call is not necessary.
for Director Specialty Corporations Rulings Division Corporate Rulings Directorate Legislation Branch