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 

|

 31