Acquisition of Control

The SC rules apply on an acquisition 
of control of a corporation to treat the 
corporation as a successor to itself. As 
a result, the corporation is in the same 
position that it would have been in if 
it had acquired all of its property from 
another corporation with the same 
resource expenses and properties, 
which it had owned immediately prior 
to the acquisition of control, and it had 
elected to have the SC rules apply.

The ITA contains relieving provisions that 
provide for exceptions to the effect of 
the SC rules on an acquisition of control 
of a corporation.

Designations Among Corporations

A “transferor corporation” may make 
a designation in respect of its income 
from resource properties owned by 
it immediately before an acquisition 
of control in favour of a “transferee 
corporation” for any taxation year ending 
after the acquisition of control. The 
transferee must be either the parent 
corporation or a subsidiary wholly 
owned corporation of the transferor 
corporation or of a corporation that 
is a wholly owned subsidiary of the 
person who is a parent of the transferor 
corporation throughout the taxation year. 

The transferee may use the designated 
income to compute the amount of the 
deduction that it is entitled to claim in 
respect of its successored resource 
expenses that it incurred while it 
was a parent or subsidiary wholly 
owned corporation of the transferor. 
This designation is advantageous in 
a situation where one member of a 
corporate group had resource expenses 
but no property prior to an acquisition 
of control. The designation causes 
income that is from a resource property 

to lose that character to the transferor 
corporation and to cause income of the 
transferee to take on that character. 
The designation does not cause income 
of the transferor to become income of 
the transferee. 

Partnership Income 

When a partnership owns resource 
property, a partner of the partnership 
does not have an interest in that 
property as a result of having an 
interest in the partnership. In addition, a 
partnership cannot deduct any resource 
expenses that it incurs, but instead 
allocates those expenses to the partners 
at the end of the taxation year of the 
partnership. But for specific relieving 
provisions in the SC rules, a corporation 
could not apply any of its resource 
expenses existing immediately prior to 
an acquisition of control against income 
from and proceeds of disposition 
of resource properties owned by a 
partnership in which it had an interest 
immediately prior to the acquisition 
of control. 

The relieving provision treats the 
corporation as having owned, 
immediately before the acquisition 
of control, a portion of the resource 
property owned by the partnership at 
the time of the acquisition of control 
equal to its percentage share of the 
aggregate of amounts that would be 
paid to all members of the partnership 
if it were wound up at that time. 

In addition, for taxation years ending 
after the acquisition of control, a 
partner’s share of the income of 
the partnership is deemed to be 
income of the corporation for the 
year attributable to production from 
the property. The corporate partner’s 
share of income of the partnership 

for such purposes is the lesser of 
its share otherwise determined and 
the amount that would be its share 
of the income of the partnership 
if that share were determined on 
the basis of the corporate partner’s 
percentage entitlement to the property 
of the partnership on a wind-up of 
the partnership.

A similar issue arises where there 
is an amalgamation of corporations 
that are not subsidiary wholly owned 
corporations of a person and one 
of the corporations is a partner of 
a partnership. In this situation, the 
amalgamated corporation is entitled 
to a similar relieving provision.

Capital Cost Allowance

Calculation of Capital Cost 

Allowance

The capital cost allowance (CCA) 
provisions in the ITA allow a taxpayer 
to claim an annual deduction in respect 
of depreciable property owned at 
the end of the taxation year. Each 
depreciable property is allocated to a 
class, and the amount of the deduction 
varies according to the class in which 
the property belongs. For most classes, 
the CCA deduction that may be claimed 
in a particular year is calculated on a 
declining balance basis. Any balance 
remaining in the particular class at the 
end of a taxation year is referred to as 
undepreciated capital cost (UCC) and 
represents the opening balance for the 
following taxation year.

The UCC balance for each class is 
adjusted each year to reflect any 
acquisitions or dispositions of property 
in that class. For acquisitions, the 
balance is increased by the net cost 

© 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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 A Guide to Canadian Mining Taxation