INDEX Amalgamation See also Reorganization, corporate . continuity of assets, liabilities and share- holders, 10.5 . special rules for certain amalgamations, 10.5 .. “subsidiary wholly-owned corporation” involving, 10.5 ... defined, 10.5 .. successor rules not applying, 10.5 . successor corporation rules generally ap- plying, 10.5 . two or more taxable Canadian corpora- tions, 10.5 Canadian Development Expense (CDE), 3.4 See also Exploration and development, Flow-through shares and Mineral prop- erty Interests, farm-outs Canadian Exploration Expense (CEE), 3.3 See also Exploration and development, Flow-through shares and Mineral Prop- erty Interests, farm-outs Capital cost allowance (CCA) . available-for-use rule, 4.10 .. anti-avoidance provision, 4.10 ... non-arm’s length lease payments, 4.10 .. butterfly reorganization, 4.10 .. long-term construction project rule, 4.10 ... example of election to use long-term project rule, 4.10 ... upper threshold limit on this exemp- tion, 4.10 .. rolling start rule, 4.10 .. when building considered available for use, 4.10 . . when property, other than building, considered available for use, 4.10 . class applicable for depreciable mining property generally, 4.3 .. before 1988, 4.4 ... Class 10, 4.4.2 .... acquired after commencement of commercial production, 4.4.2 .... electrical generating or distributing equipment, 4.4.2 .... “social property”, 4.4.2 .... transportation property, 4.4.2 ... Class 12, 4.4.3 ... Class 28, 4.4.1 .... acquired prior to commencement of commercial production, 4.4.1 .... additional CCA deduction, 4.4.1 ..... “income from a mine” included. 4.4.1 .... base 30 per cent CCA rate, 4.4.1 .... major mine expansion, 4.4.1 .... new mine, 4.4.1 ..... types of property, 4.4.1 ... Class 29, 4.4.4 . Crown property and surface construction, 4.8 .. payment to government to allow it to acquire social property, 4.8 ... taxpayer deemed to acquire property at cost, 4.8 ... taxpayer deemed to have acquired property for CCA purposes, 4.8 . . “specified temporary access roads”, qualifying as CEE, cost of, 4.8 . general concept, 4.2 .. “assistance”, capital cost reduced by, 4.2 .. sale of depreciable asset, 4.2 ... capital gain, 4.2 ... “recaptured”, 4.2 ... terminal loss, 4.2 . half-year rule, 4.8 .. exception where acquisition of property pursuant to specified transactions, 4.9 ... “butterfly” reorganization, 4.9 ... depreciable property requirement, 4.9 .. property available under “rolling start rule” not subject to rule, 4.9 . introduction, 4.1 . Oil Sands, 4.5.6 .. accelerated CCA, 4.5.6 I-1 (Taxation of Canadian Mining) (2015-2)
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INDEX
Amalgamation See also Reorganization,corporate
. continuity of assets, liabilities and share-holders, 10.5
. . exception where acquisition of propertypursuant to specified transactions, 4.9
. . . “butterfly” reorganization, 4.9
. . . depreciable property requirement, 4.9
. . property available under “rolling startrule” not subject to rule, 4.9
. introduction, 4.1
. Oil Sands, 4.5.6
. . accelerated CCA, 4.5.6
I-1 (Taxation of Canadian Mining) (2015-2)
. ownership of mineral resource, 4.7
. . common law presumption of ownership,4.7
. . “custom processing” assets excluded, 4.7
. . “mineral resource” defined, 4.7
. . mining operator considered to “own”mineral resources, 4.7
. . severance of mineral rights, 4.7
. . . by Crown reservation, 4.7
. . . by private contract, 4.7
. . . by statute, 4.7
. . . corporeal interest, 4.7
. . . . possession of minerals in situ, 4.7
. . . incorporeal interest, 4.7
. . . . profit a prendre, 4.7
. . . . . holder not having possession ofminerals in situ, 4.7
. . . . . right to extract and possess mineralsafter severed, 4.7
. . . . . whether interest in land, 4.7
. . . mining lease serving to convey mineral
ownership, 4.7. . . mining operator considered to “own”mineral resources, 4.7
. planning, 4.11
. rules after 1988 and before March 21,2013, 4.5
. . Class 41(a), 4.5.1
. . Class 41(a.1), 4.5.2
. . Class 41(b), 4.5.3
. . Class 43, 4.5.4
. . . Class 43(a), 4.5.4
. . . Class 43(b), 4.5.4
. . “custom processing” and “coal mine
operator”, 4.5.5. . deemed mine, 4.5.8. . oil sands, 4.5.6. . . amendments to Regulations, 4.5.6. . production from mine, 4.5.7. rules after March 20, 2013, 4.6. . consequential amendments, 4.6.4. . eligible mine development property, 4.6.2. . federal budget 2013, 4.6. . new Class 41.2, 4.6.1. . other definitions, 4.6.3. . transitional schedule, 4.6
Change of control See also Successor rules. capital losses, 10.8.3. . accrued capital losses, 10.8.3. . . accrued losses used to increase adjustedcapital cost base of property with
. gain, 10.8.3
. . definition, 10.8.3
. . none of capital losses available for car-ryforward or carried back, 10.8.3
. depreciable property, 10.8.4
. . anti-avoidance provision, 10.8.4
. . . preventing acquisition of depreciableproperty in anticipation of change ofcontrol, 10.8.4
. . preventing acquisition of potentialterminal loss in its depreciable property,10.8.4
. non-capital losses, 10.8.2
. . deductions allowed in two limited cir-cumstances, 10.8.2
. . none of capital losses available for car-ryback and deduction, 10.8.2
. . where control of parent or subsidiaryacquired, 10.8.2
. taxation year-end, 10.8.1
. transfers of losses, deductions and creditslimited, 10.8
Classification of taxpayer. introduction, 2.1. joint venture, 2.4. . criteria for joint venture, 2.4.1-2.4.5. . . contractual intent, 2.4.2. . . development of single undertaking,2.4.1
. . . profits, participation in, 2.4.5
. . . registration, accounting, firm name,2.4.4
. . . tax planning, 2.4.3
. . defined, 2.4, 2.4.8
. . guidelines in establishing joint ventures,
2.4.6. . legal nature of, 2.4.7. . . Australian viewpoint, 2.4.7. . . Canadian viewpoint, 2.4.7. operator. . agent, 2.4.8. . role of, 2.4.8
Index
I-2
. . undisclosed principal doctrine, 2.4.8
. partnership, 2.3
. . “business” defined, 2.3
. . essential ingredients for partnership, 2.3
. . limited partnership, 2.3
. . tests in ascertaining existence of part-nership, 2.3
. “principal-business corporation”, 2.2
. . definition, 2.2
. . factors considered in determining “chiefbusiness” of corporation, 2.2
. . income tax consequences, 2.2
. . “principal business”, 2.2
. . . mining or exploring for minerals, 2.2
. . . point at which corporation becoming“principal-business corporation”, 2.2
. . . . construction vs. exploring or drillingfor gas, 2.2
taxpayer’s investment, 11.7.4. . . . “tax shelter” defined, 11.7.4. . partner’s share, 11.7.1. . reallocation, 11.7.2. . restriction on allocation, 11.7.2. . . example where special allocation ofincome and loss being desirable, 11.7.2
. . . non-arm’s length partners agreeing to
share income or loss, 11.7.2. . . . sharing in manner not reasonable,11.7.2
. . . . disposition of part of partnershipinterest, 11.6.1
. . . . . where funds contributed by new
partner not left in partnership, 11.6.1. . . . disposition of partnership interest,11.6.1
. . . . disposition to tax-exempt or non-
resident person, 11.6.1. . sale by non-resident, 11.6.2. . . “taxable Canadian property”, 11.6.2. . . U.S. resident not having treaty pro-tection, 11.6.2
. two-tier partnership, 11.4
Property interests See Mineral property in-terests
Prospectors and grubstakers, 2.5 See alsoClassification of taxpayer
provincial, 13.3. history, 13.2. . corporate income tax system, 13.2. . . “agreeing provinces”, 13.2. . . federal tax abatement for incomeearned in province, 13.2
. . . . whether corporation having “per-
manent establishment” in province, 13.2. . . “non-agreeing” provinces, 13.2. . . . federal allocation rules, 13.2. . double taxation for personal income tax,13.2
. . northern regions or territories, 13.2
. . . powers derived from federal govern-ment, 13.2
. . provinces agreeing not to enact incometax in return for “rent”, 13.2
. . provinces having limited tax power, 13.2
. . . “direct taxation”, 13.2
. . . “provincial purpose”, 13.2
. . . “within the province”, 13.2
. . provinces now levying personal incometax as percentage of federal tax, 13.2
Provincial levies and resource allowance. introduction, 5.1. . flat charge per ton on ore removed, 5.1. . royalties on petroleum production, 5.1. . tax on gross production unconstitutionalas “indirect tax”, 5.1
. . tax on “mining profit” constitutional as
“direct tax”, 5.1. . . whether deductible as laid out “forpurpose of earning income”, 5.1
. mining taxes, problem with, 5.1.7
. period of 1944-1948, 5.1.1
. . deduction for mining tax on profits, 5.1.1
. . . accrual basis, deduction on, 5.1.1
. . . full deduction not allowed, 5.1.1
. period of 1949-1967: Regulation 701 for-mula, 5.1.2
. . proportion of mining taxes deductiblebased on formula, 5.1.2
. . mismatch of numerator and denomi-
nator for various reasons, 5.1.2. . random working of formula amongprovinces, 5.1.2
. . Regulation 701 being arbitrary and un-
satisfactory, 5.1.2. period of 1974-2003, 5.1.5. . deduction denied for provincial royalties
and taxes on resource production, 5.1.5. . mining taxes on profits becoming com-pletely non-deductible, 5.1.5
. . “resource allowance” deduction, 5.1.5
. . . amendments to federal resource al-lowance regime, 5.1.5
. . . . deductions respecting use of propertyor services provided by non-arm’s lengthparty, 5.1.5
. . . . every deduction virtually included in
calculating “resource profits”, 5.1.5. . . . inclusion of 25 per cent of resourcelosses, 5.1.5
. . . . “resource profits” being those derivedfrom “resource activities”, 5.1.5
. . . investment encouraged by excluding
certain expenses from “resource profits”,5.1.5
. . . “resource profits” from production
receiving restricted interpretation, 5.1.5. . . 25 per cent of resource productionprofits, 5.1.5
. . Syncrude Remission Order, 5.1.5
. problems with mining taxes, 5.1.7
. . current deduction limited to mining ofindustrial minerals, 5.1.7
Index
I-13 (Taxation of Canadian Mining) (2015-2)
. . definitions
. . . “eligible tax”, 5.1.8
. . . “income”, 5.1.8
. . . “mine”, 5.1.8
. . limitation in section 3900 being in-appropriate, 5.1.7
. . . mining tax only deductible if tax im-posed on persons engaged in mining op-
erations, 5.1.7. . . . mineral rights tax not contingentupon production, 5.1.7
. . . taxpayer should not be prevented fromdeducting full amount of taxes, 5.1.7
. . proposed deductibility of provincial
mining taxes, 5.1.7. . . proposal resurrecting former section701 of Regulations, 5.1.7
. . . proposed amendment repealing defi-
nition of “minerals”, 5.1.7. . suggested approach, 5.1.8. . . Saskatchewan potash production, 3.1.8. . taxes on mining income serving similarpurpose to provincial resource royalties,5.1.7
. proposals of 2003, 5.1.6
. . arbitrariness of resource allowance, 5.1.6
. . “new economic realities”, 5.1.6
. . . metal prices declining and marketpressures to be competitive, 5.1.6
. . . oil and gas markets deregulated andprices fluctuating, 5.1.6
. . phasing in of deduction for actual pro-vincial royalties and mining taxes, 5.1.6
. . . . Canadian Exploration and Develop-ment Overhead Expense (CEDOE), 5.2.4
Index
I-14
. . “gross resource profits”, 5.2.1
. . . income and losses from specific sour-ces, 5.2.1
. . . . concept of “production” as source ofincome, 5.2.1
. . notional, 13.6
. . percentage amount claimed being re-duced, 5.2
. . resource loss, 5.2.5
. . “resource profits”, 5.2.2
. . . deductions, 5.2.2
. . . . exclusions from Part I deductions,5.2.2
. . . . “resource activity”, 5.2.2
. Royal Commission of 1964-1966, 5.1.3
. . problems with Regulation 701, 5.1.3
. . recommendations of Royal Commission,5.1.3
. . . full deductibility as alternate solution,5.1.3
. Royalties, 5.1.9
. . deductibility of, 5.1.9
. . forms of, 5.1.9
. . inclusion in income, 5.1.9
. tax reform of 1971, 5.1.4
. . no deductibility of provincial taxes, butincreased federal abatement, 5.1.4
Provincial mining taxes. British Columbia mineral tax, 14.3. . assessment and reassessment, 14.3.9. . . two levels of appeal, 14.3.9. . . . appeal to B.C. courts, 14.3.9. . . . appeal to minister, 14.3.9. . . . . appeal from minister’s decision,
14.3.9. . books and record, 14.3. . calculation of tax, 14.3.4. . . cumulative expenditure account (CEA),14.3.4(d)
. . . . . prescribed allowance for new mines,14.3.4(b)
. . . . “hedging activities” excluded, gains
and losses from, 14.3.4(b). . . . prescribed costs and expenses,14.3.4(b)
. . . . . exploration costs, 14.3.4(b)
. . . . . . allocation to mine, 14.3.4(b)
. . . . . . election by operator, 14.3.4(b)
. . . . . . exploration account, 14.3.4(b)
. . . . . preproduction discovery costs,14.3.4(b)
. . . privately owned minerals, 13.3.3
. . . slag, 13.3.3
. . . . . specific exclusions, 14.3.4(b)
. . . . proportionate share of gross revenuefrom operation of mine, 14.3.4(b)
. . . . transaction value of mineral product,14.3.4(b)
. . collection and enforcement, 14.3.11
. . credits available, 14.3.2
. . . reclamation costs, 14.3.2
. . . . defined, 14.3.2
. . . . reclamation tax account (RCA),14.3.2
. . . specified portion of expenditures,
14.3.2. . disposition of mine, 14.3.5. . . election in respect of account balances
on disposition of interest in mine, 14.3.5. . . . joint election, 14.3.5. . . . resultant consequences, 14.3.5. . filing requirements, 14.3.6. . introduction, 14.3. . . minerals subject to tax, 14.3. . . two-part tax, 14.3. . . . primary tax: net revenue tax, 14.3. . . . secondary tax: net current proceedstax, 14.3
. . liability for tax, 14.3.3
. . . “mine”, 14.3.3
. . . “mineral”, 14.3.3
. . . “operator”, 14.3.3
. . payment requirements, 14.3.7
. . penalties and offences, 14.3.10
. . tax payable, 14.3.1
. . . placer gold mine, 14.3.1
. introduction, 14.1
Index
I-15 (Taxation of Canadian Mining) (2015-2)
. . levy of charge on resource production,
14.1. . . “direct” taxes, right to levy, 14.1. . . proprietary interest in resource, where,
14.1. . mining industry, 14.1. . . flat charge per ton of ore removed, 14.1. . . mining profit, tax on, 14.1. . non-renewal natural resources, 14.1. . . broad power of taxation, 14.1. . . “primary production”, 14.1. . oil and gas leases, 14.1. . . royalties on production, 14.1. . provincial tax legislation, 14.1. . three northern regions, 14.1. . . none having power to tax natural re-sources, except Yukon, 14.1
. . . powers derived from federal govern-
ment, 14.1. . . . devolution of power, 14.1. Northwest Territories royalty, 14.4. . appeals, 14.4.9. . books and records, 14.4.8. . deductions, 14.4.4, 14.4.5. . . permitted, 14.4.4. . . . depreciation allowance, 14.4.4. . . . . insurance proceeds, 14.4.4. . . . processing assets, where using, 14.4.4. . . . where production less than 12months, 14.4.4
. . . prohibited, 14.4.5
. . filing requirements, 14.4.7
. . introduction, 14.4
. . . mining leases granted by federal mini-
ter, 14.4. . . royalty on production, 14.4. . . . characteristics of royalty, 14.4. . liability for tax, 14.4.1. . payment of royalties, 14.4.6. . royalty rates, 14.4.2. . value of output, 14.4.3. . . formula for calculation, 14.4.3. Ontario mining tax, 14.2. . assessment and reassessment, 14.2.8. . collection and enforcement, 14.2.10. . exemption for new mine and mine ex-pansion, 14.2.3
. . filing requirements, 14.2.7
. . liability for tax, 14.2.1
. . . “mine”, 14.2.1
. . . “operator”, 14.2.1
. . Ontario Royalty and diamonds, 14.2.11
. . payment, 14.2.6
. . penalties and offences, 14.2.9
. . profit calculation, 14.2.5
. . . deductions, 14.2.5(b)
. . . .Ontario exploration and developmentexpenditures, 14.2.5(b)
. . . . specific exclusions, 14.2.5(b)
. . . depreciation and processing allowance,14.2.5(c)
. . . . allowable depreciation for miningasset, 14.2.5(c)
tion” involving, 10.5. . . . defined, 10.5. . . . successor rules not applying, 10.5. . successor corporation rules generallyapplying, 10.5
. . two or more taxable Canadian cor-
porations, 10.5. change of control, 10.8. . capital losses, 10.8.3. . . accrued capital losses, 10.8.3. . . . accrued losses used to increase ad-justed capital cost base of property withgain, 10.8.3
. . . definition, 10.8.3
. . . none of capital losses available forcarryforward or carried back, 10.8.3
. . depreciable property, 10.8.4
. . . anti-avoidance provision, 10.8.4
. . . . preventing acquisition of depreciable
property in anticipation of change ofcontrol, 10.8.4
. . . . preventing acquisition of potentialterminal loss in its depreciable property,
10.8.4. . non-capital losses, 10.8.2
Index
I-17 (Taxation of Canadian Mining) (2015-2)
. . . deductions allowed in two limited cir-
cumstances, 10.8.2. . . none of capital losses available forcarryback and deduction, 10.8.2
. . . where control of parent or subsidiaryacquired, 10.8.2
. . “restart” transactions, 10.8
. . taxation year-end, 10.8.1
. . transfers of losses, deductions and creditslimited, 10.8
. divisive reorganization (butterfly), 10.7
. . advance income tax rulings advisable,10.7
. . distribution of assets of corporation to
its corporate shareholders, 10.7. . . tax-deferred basis, 10.7. . property transferred in proportion to theshareholder’s proportionate ownership,
10.7. . steps that shareholder corporations tak-ing in effecting reorganization, 10.7
. introduction, 10.1
. liquidation, 10.6
. . bump and partnerships, 10.6.2
. . . application of s. 88(1)(d)(ii.1), 10.6.2
. . . partnership interest, denial of, 10.6.2
. . subsection 88(1) wind-up, 10.6.1
. . . cost of qualifying capital property, in-creasing, 10.6.1
. . . no change in CCDE of subsidiary or toparent’s account, 10.6.1
. . . other properties deemed to be disposedof for “cost amount”, 10.6.1
. . . resource properties distributed to par-
ent deemed to be for no proceeds, 10.6.1. . . where subsidiary wound up, 10.6.1. . taxable liquidation, 10.6.3. rollover concept, 10.2. section 85 rollovers, 10.3. . general rules, 10.3.3. . . elected amount, 10.3.3.3(b). . . . balance of transferor’s CCDE ac-count, 10.3.3(b)
. . . . “eligible property”, 10.3.3(b)
. . . . equal to aggregate of vendor’s CCEEand CCDE pools, 10.3.3(b)
. . . . . conversion to purchaser’s CCDE
account, 10.3.3(b). . . . . . avoidance by successor election,10.3.3(b)
. . . . fair market value, not exceeding,10.3.3(b)
. . . . foreign resource properties, 10.3.3(b)
. . . . nominal amount, 10.3.3(b)
. . . . restrictions, 10.3.3(b)
. . . . . non-share consideration, 10.3.3(b)
. . . . vendor not required to include any
amount in its income, 10.3.3(b). . . key conditions, 10.3.3(a). . . miscellaneous considerations, 10.3.3(c). . subsection 85(1), 10.3.1. . . foreign resource property not “eligibleproperty”, 10.3.1
. . . non-residents, disposition by, 10.3.1
. . . “taxpayer” defined, 10.3.1
. . . transfer to taxable Canadian corpora-tion, 10.3.1
. . subsection 85(2), 10.3.2
. . . partnership, transfer by, 10.3.2
. share for sale exchange, 10.4
. . rule not applying if certain conditionspresent, 10.4
Resource allowance See Provincial leviesand resource allowance
Sale of mining properties. actual sale, 8.3. . basic rules, 8.3.1. . . Canadian resource property, 8.3.1(a). . . . income included from proceeds beingnegative balance of CCDE account,
8.3.1(a). . . . proceeds of sale reducing CCDE ac-count to extent proceeds receivable,
8.3.1(a). . . . . receivable amount when collectibleright to amount acquired, 8.3.1(a)