19 April 1990 Income Tax Severed Letter AC80358 - Canadian Exploration Expense of a New Mine

DATE April 19, 1990

TO    Appeals & Referrals Division    FROM  Rulings Directorate
      Appeals Branch                    DE  Resource Industries
                                              Section
      Mr. J. Crowley                        G.R. White
                                            957-8585
                                     FILE
                                    DOSSIER      8-0358
            24(1)
SUBJECT
OBJET:

We are writing in reply to your memorandum dated March 19, 1990, in which you requested we confirm that your understanding of subparagraph 66.1(6)(a)(iii.1), both before and after the 1985 amendment thereto, is correct and whether we previously dealt with the problem of a taxpayer's inability to successfully challenge the Department's position on "new mine" status in court prior to the enactment of the 1985 amendment.

Your understanding of subparagraph 66.1(6) (a) (iii.I) both before and after the 1985 amendment is as follows:

"The present wording of subparagraph 66.1(6) (a) (iii.I) is:

"any expense incurred by him after November 16, 1978 for the purpose of bringing a new mine in a mineral resource in Canada into production in reasonable commercial quantities and incurred before the coming into production of the new mine, including..." (emphasis added)

This subparagraph was amended by 1985, c.45, s29(8) applicable with respect to expenses incurred after May 9, 1985. The provision formerly read as follows:

"any expense incurred by him after November 16, 1978 for the purpose of bringing a mineral resource in Canada into production and incurred prior to the commencement of production from the resource in reasonable commercial quantities, including..." (emphasis added).

According to the technical notes the change in the wording from mineral resource to new mine results in mine development expenses incurred in bringing a new mine in a mineral resource into production may qualify as Canadian Exploration Expense even though there may have been production from the mineral resource by another mine."

You point out that the year under appeal is 24(1) which is prior to the 1985 amendment. It is your understanding that prior to the 1985 amendment "new mine" status was recognized administratively and had no validity in law. It is also your understanding that an underground extension of an existing coal seam cannot be considered to be a new mineral resource.

We confirm that your understanding of the above is correct.

Prior to the 1985 amendment, the Department administratively treated a mine as if it were a new-mine in certain circumstances (e.g. if it was situated on the site of an abandoned or derelict mine which had previously been in production) and the amendment to subparagraph 66.1(6) (a) (iii.I) simply recognized what the Department had been doing in those circumstances for some time.

It should be kept in mind, however, that we have not, to our knowledge, ever recognized the normal mining practice of going underground after the surface ore had been extracted as being a new mine. Our position on this question would be the same notwithstanding the amendment.

You identified the problem that had the instant case occurred after the 1985 amendment, the taxpayer could have taken our interpretation of "new mine" to court. However, in your view.

                    24(1)      
This is a problem we have not faced before although we have denied
new mine status to other taxpayers for different reasons but none
have reached the objection stage.

                                 21(l)(b)

We appreciate your concerns and will be glad to assist in this matter in any way we can.

Section Chief Resource Industries Section Bilingual Services and Resource Industries Division Rulings Directorate