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

© 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.

16 

|

 A Guide to Canadian Mining Taxation