“Construction” and “engineering and 
design work” do not include obtaining 
permits or regulatory approvals, 
conducting environmental assessments, 
community consultations, or impact 
benefit studies, or similar activities. 

The 2013 budget introduced phase-in 
provisions for the implementation of the 
new rules. The relevant expenses will 
continue to be CEE if they are incurred 
prior to 2015. A portion of the expenses 
incurred in the three years following 
2014 will be CEE in accordance with 
the formula set out in Table 4.

Table 4: Amount of CEE Under 
Transitional Rules, 2015–2017

Year

Portion of Expense 

that is CEE

2015

80%

2016

60%

2017

30%

The CRA interprets the purpose 
requirement in the current categories 
of grassroots exploration and mine 
development quite narrowly. Community 
consultation costs and the costs of 
feasibility and environmental studies will 
qualify as CEE only if the taxpayer can 
demonstrate that they were incurred 
for the relevant purpose. For example, 
the CRA takes the position that the 
cost of a feasibility study to determine 
whether it is economically possible to 
bring a mine into production will not 
qualify. On the other hand, the cost 
of an assessment of the physical and 
chemical characteristics of the deposit 
to assess its potential as a commercial 
deposit will be allowed as a CEE. While 
such a narrow interpretation is open to 
challenge, there is no case law to date 
that has settled the issue.

CEE exclude the costs of depreciable 
property, such as machinery and 
equipment. (These costs are discussed 

in 

Deductions, Allowances, and Credits – 

Capital Cost Allowance

.) 

Any revenues earned as a result of 
incurring exploration expenses will 
reduce the amount of CEE that can be 
claimed. For example, if a corporation 
incurs CEE in bringing a gold mine into 
production and recovers and sells gold 
during this “pre-commercial” stage 
of production, the gold revenues will 
reduce the CEE.

A taxpayer includes its CEE in its 
cumulative Canadian exploration 
expense (CCEE) account. 

• A principal-business corporation 

may deduct up to 100% of its CCEE 
balance at the end of the year to 
the extent of its income for that 
particular taxation year. A principal-
business corporation cannot create 
a loss by claiming a deduction in 
respect of its CCEE account in 
excess of its income for that year. 

• A taxpayer that is not a principal-

business corporation may claim 
a deduction of up to 100% of its 
CCEE account at the end of the 
year without restriction. However, a 
deduction in excess of the taxpayer’s 
income may have significant adverse 
consequences under federal, and in 
some cases provincial, minimum tax 
legislation. 

A taxpayer deducts from its CCEE 
account any amount claimed as CEE 
in the year. Any balance remaining in 
the account can be carried forward 
indefinitely and deducted in future years.

Canadian Development 

Expenses

The ITA also provides a deduction for 
Canadian development expenses 
(CDE) incurred in the mining context. 
With the implementation of the new 

CEE rules described above, there are 
three broad categories of CDE:

• Acquisition costs of a Canadian 

resource property that is a mining 
property: This category includes the 
cost of land, exploration and mining 
rights, licences, permits and leases, 
and a royalty interest in a mining 
property in Canada. Until the federal 
budget of 2011, the costs of oil sands 
rights, licences, permits, and leases 
were CDE. Going forward, such costs 
will be Canadian oil and gas property 
expenses (COGPE), discussed below.

• Mine development:

 

This category 

of expenses includes costs incurred 
for the purpose of bringing a new 
mine in Canada into production “in 
reasonable commercial quantities.” 
These costs must be incurred before 
the new mine reaches a commercial 
level of production. This category 
of expenses is currently classified 
as CEE. However, starting in 2015, 
a portion of such expenses will be 
classified as CDE, and after 2017, all 
such costs will be treated as CDE.

• Costs incurred after a mine has 

come into production: This category 
includes the cost of sinking or 
excavating a mine shaft, constructing 
a main haulage way, or carrying out 
similar underground work designed 
for continuing use.

CDE exclude the costs of depreciable 
property, such as machinery and 
equipment (discussed in 

Deductions, 

Allowances, and Credits – Capital Cost 
Allowance

).

A taxpayer includes its CDE in its 
cumulative Canadian development 
expense (CCDE) account. The taxpayer 
may deduct up to 30% of the balance 
in a year (subject to proration for short 
years). The deduction that a taxpayer 
may claim in respect of its CCDE 
account is discretionary.

© 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms 
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

 

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