taxpayer that incurred those expenses. 
The SC rules are a mixture of relieving 
and limiting legislation. They permit 
a corporation that acquires all or 
substantially all of the Canadian 
or foreign resource properties of 
another person to deduct any unused 
expenses of the transferor subject to 
the limitations described below. In this 
sense, the rules provide an exception to 
the basic premise of the ITA that only 
a taxpayer that incurs expenses may 
deduct them. At the same time, the 
SC rules impose limitations that may 
apply where a corporation participates 
in a reorganization or where a person 
or group of persons acquires control 
of the corporation.

The SC rules allow a purchaser 
(the successor) that acquires all or 
substantially all of the Canadian 
resource properties or foreign 
resource properties of a vendor 
(the original owner) to elect 
jointly with the vendor to treat any 
undeducted resource expenses of 
the vendor as successored expenses 
of the purchaser. The successor 
may apply successored expenses 
only against:

• income from production from, and 
• proceeds of disposition of,

the properties acquired from the 
original owner. 

Original Owner

The original owner is the person who 
originally incurred the particular resource 
expense. The original owner may be an 
individual, corporation, or other person. 
A partnership is not a person for the 
purposes of the SC rules; in addition, 
resource expenses are allocated to and 
deducted by the partners and not by 
the partnership. (See 

Structuring Mining 

Investments – Partnerships and Joint 
Ventures

.)

The amount of qualifying expenses 
incurred by an original owner that are 
available to a successor in a taxation 
year is:

• the aggregate of such expenses that 

were incurred by the original owner 
before it disposed of the particular 
property

less 

• the amount of such expenses

– deducted by the original owner,
– deducted by any predecessor 

owner of the particular 
property, and

– deducted by the successor 

in computing its income for a 
preceding year. 

Successor

A corporation that is entitled under 
the SC rules to deduct the expenses 
of another person is referred to as a 
successor. Only a corporation may be a 
successor. There is no requirement that 
a successor corporation be a Canadian 
corporation.

With respect to acquisitions of 
Canadian resource properties, a 
successor may claim the maximum 
allowable deduction in respect of CEE 
(up to 100%), CDE (30% per annum 
on a declining balance basis), and 
COGPE (up to 10%) if it has sufficient 
income from production or proceeds 
of disposition from the acquired 
properties to use those deductions. Any 
proceeds of disposition are deducted 
from and reduce the appropriate CCDE 
and CCOGPE accounts of the original 
owner that the successor corporation 
may deduct.

Similar rules apply to acquisitions of 
foreign resource properties; however, 
they may operate independently from 
the rules relating to Canadian resource 
properties.

Predecessor Owner

One of the complications of the SC 
rules is that they contemplate an infinite 
number of transfers and therefore an 
infinite number of successors. The link 
or links between the original owner 
that incurs resource expenses and 
the successor that may deduct the 
expenses is a predecessor owner.

A predecessor owner of a resource 
property is a corporation that: 

• acquired the property in 

circumstances in which the 
SC rules apply; 

• disposed of the property in 

circumstances in which the 
rules apply; and 

• but for the application of the rules, 

would have been entitled to deduct 
resource expenses incurred by an 
original owner of the property against 
income from production from, or 
proceeds of disposition of, the property 
in computing its income for a taxation 
year after it disposed of the property. 

A corporation may be an original owner in 
connection with resource expenses that it 
incurred in respect of a property and may 
be a predecessor owner with respect 
to resource expenses that previous 
original owners of that property incurred. 
Example 1 illustrates this concept.

Provided that the property has been 
transferred from one person to another 
in accordance with the SC rules, the 
successor that owns the property in a 
taxation year may claim the resource 
expenses incurred by each original 
owner against income from the property. 

The SC rules work on a “pool” concept. 
They look at all of an original owner’s 
expenses and the properties that it 
owns at the time it disposes of the 
properties in accordance with the 
rules. The SC rules do not track the 
expenditures to a particular property. 

© 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.

 

Deductions, Allowances, and Credits 

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