Would a severance payment made by the taxpayer to an employee who performed services on exploration projects (but whose duties were not all or substantially all directed towards exploration or development activities) be part of the taxpayer’s Canadian exploration and development overhead expenses as per Reg. 1206(1)? Before finding that the payment would not so qualify, CRA stated (TaxInterpretations translation):
Salary costs for time devoted by an employee to functions which are all directed on exploration activities in Canada described in the CEE definition ... would be included as CEE. However, the CRA position is that a severance payment is an expense made by the corporation at the time of cessation of employment and does not constitute an amount paid for services rendered. Consequently, it is not possible to establish a link between the expense and the exploration work carried out. Thus, such a severance payment would not be included in CEE.