The ITA imposes restrictions on the
entitlement of a corporation to claim
losses when a person or a group
of persons acquires control of the
corporation. The corporation cannot carry
forward net capital losses after the
acquisition of control. A corporation is
permitted to file an election to crystallize
accrued gains on capital property
(including depreciable property).
The election will result in an income
inclusion; however, the corporation
can apply against that income any net
capital losses that would otherwise
expire upon the acquisition of control
and any non-capital losses.
A corporation may not carry back its
net capital loss for a taxation year
beginning after an acquisition of control
to taxation years commencing before
the acquisition of control. In addition, the
corporation must treat as a capital loss
realized in the year ending immediately
before the acquisition of control the
amount by which the adjusted cost base
of any capital property exceeds the fair
market value of the property.
After an acquisition of control of a
corporation, the corporation can deduct
pre-acquisition-of-control non-capital
losses only if the business that gave rise
to those losses is carried on with a view
to profit, and only against income arising
from carrying on the same or a similar
business. Non-capital losses arising after
an acquisition of control can be carried
back only against income from the same
or a similar business.
Any amount by which the UCC or CEC
balance exceeds the fair market value
of the related depreciable property or
eligible capital property is treated
as a non-capital loss. The UCC or CEC
balances are reduced accordingly.
The deemed losses are subject to the
acquisition-of-control rules.
The ITCs of a taxpayer on an acquisition
of control are subject to rules similar to
those applicable to non-capital losses.
On an acquisition of control of a
corporation, deductions from the CCEE,
CCDE, CCOGPE, and ACFRE accounts
of the corporation are subject to the
successor corporation rules.
ITCs and the successor corporation
rules are discussed in
Deductions,
Allowances, and Credits
.
Partnerships and Joint
Ventures
In the mining industry, a partnership
or a joint venture may provide a
more flexible investment structure, as
compared with a corporation, where
arm’s-length parties wish to undertake
joint exploration, development, or
production activities.
Unlike corporations, which are purely
creations of statute, partnerships are
to a large extent created and governed
by contract; however, various provinces
have enacted legislation applicable to
partnerships. Joint ventures are completely
created and governed by contract.
The distinction between a joint venture
and a partnership is not always clear-cut.
In simple terms, a joint venture can be
described as a contractual arrangement
under which two or more parties hold
a property in common. Typically, each
party contributes the use of its own
assets to the venture and shares in the
expenses and revenues of the venture,
as agreed by contract.
While a partnership is often governed
by a contract, a partnership may
also be considered to exist in some
circumstances where the parties did
not intend to participate in such an
arrangement. Under a partnership
contract, the parties specifically agree
that their intention is to carry on
business together as a partnership;
and, as in a joint venture, they each
contribute their own assets in exchange
for a share in the expenses and the
revenues of the business. Where
there is no contract, a partnership may
nevertheless be found to exist if the
parties carry on business in common
with a view to profit.
Apart from the tax consequences,
described below, the following
consequences flow from a partnership
arrangement:
• Subject to statutory rules governing
limited partnerships, partners are
jointly and severally liable for the
actions of any partner in respect of
the partnership activities.
• Property used in the business of
the partnership will be considered
property of the partnership and not
the property of any particular partner.
• Subject to statutory rules governing
limited partnerships, one partner
may bind all other partners in the
normal course of the business of
the partnership, whether or not
the partner has authority under the
partnership agreement to bind the
partnership, unless the person with
whom the partner is dealing knows
that the partner in question has no
authority to act on behalf of the
partnership.
© 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.
Structuring Mining Investments
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