Suppose that in Example 1, Corporation
A owned 10 Canadian resource
properties (properties 1 through 10) but
incurred resource expenses only on
properties 1 through 5. If Corporation
A transferred properties 1 through 10
to Corporation B in a transaction that
satisfied the SC rules, Corporation
B could deduct any expenses of
Corporation A against income from
all of properties 1 through 10, even
though Corporation A did not incur any
expenses on properties 6 through 10.
Suppose that Corporation B purchased
property 11 and incurred expenses
on that property, but did not incur
expenses on properties 1 through 10.
Suppose further that Corporation B sold
properties 1 through 5 and property 11
in transactions that were not subject
to the SC rules (because they did not
constitute the sale of all or substantially
all of Corporation B’s Canadian resource
properties) and then sold properties
6 through 10 to Corporation C in a
transaction that was subject to the
SC rules. Corporation C could deduct the
SC expenses of Corporation A against
income from properties 6 through 10
notwithstanding that Corporation A had
not incurred any of those expenses on
those properties. Corporation C could
also deduct any undeducted expenses
of Corporation B that Corporation B
had incurred on property 11 against
income from properties 6 through 10,
even though Corporation B had not
transferred property 11 to Corporation C.
Amalgamations
Where there is an amalgamation of
two or more corporations, the new
corporation is a successor to each of
its predecessor corporations, and the
SC rules apply to the deduction by
the new corporation of the resource-
related expenses of each of the
predecessor corporations. There is an
exception to this rule where there is an
amalgamation of a corporation and one
or more of its subsidiary wholly owned
corporations, or an amalgamation of two
or more corporations each of which is a
subsidiary wholly owned corporation of
the same person. In such circumstances,
the new corporation is deemed to be the
same corporation as and a continuation
of each amalgamating corporation.
For these purposes, a subsidiary wholly
owned corporation of a person (the
“parent”) is a corporation all of the
issued and outstanding shares of which
belong to the parent, to a corporation
that is itself a subsidiary wholly owned
corporation of the parent, or to any
combination of persons each of which
is a parent or a subsidiary wholly owned
corporation of the parent.
Since “person” includes a reference
to an individual and not just to a parent
corporation, a corporation can be a
subsidiary wholly owned corporation
of an individual. Consequently,
an amalgamation of two or more
corporations, all of the shares of each
of which are owned by the same
individual, will satisfy the conditions
for the exception. Example 2
illustrates such a situation.
Where the exception applies, the new
corporation may deduct the expenses
of a predecessor corporation on the
same basis as each of the predecessor
corporations. Consequently, the
amalgamated corporation will be
Expenses Deductible to a Predecessor Owner and a Successor
In the sequence of transactions illustrated below, Corporation A transfers
resource properties to Corporation B in accordance with the SC rules;
Corporation B transfers resource properties to Corporation C in accordance with
the SC rules; and Corporation C transfers resource properties to Corporation D in
accordance with the SC rules.
Corporation A
Corporation B
Corporation C
Corporation D
• Each of Corporations A, B, and C is an original owner with respect to any
expenses that it incurs on the properties.
• Each of Corporations B and C is a predecessor owner with respect to any
expenses that Corporation A incurred on the properties.
• Corporation C is a predecessor owner with respect to any expenses incurred
by Corporation B on the properties.
• Corporation D is the successor with respect to the expenses that
Corporations A, B, and C incurred on the properties.
EXAMPLE 1
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A Guide to Canadian Mining Taxation