2014-0559451E5 Deduction pursuant to paragraph 20(1)(v)

Principal Issues: Timing of deductibility under paragraph 20(1)(v) of amounts payable pursuant to the Quebec Mining Tax Act in an acquisition of control scenario.

Position: Amounts payable pursuant to the Quebec Mining Tax Act would be deductible in the taxation year for purposes of the Income Tax Act that includes the fiscal year end for purposes of the Quebec Mining Tax Act if all other requirements for such deductibility are met.

Reasons: See below.

Author: Bilodeau, Nicolas
Section: 20(1)(v), Reg. 3900

XXXXXXXXXX
                                                                                                                                                  Nicolas Bilodeau
                                                                                                                                                  2014-055945
                                                                                                                                                  (613) 952-8500

December 1, 2014

Dear XXXXXXXXXX,

We are writing in response to your request for an interpretation of paragraph 20(1)(v) of the Income Tax Act (the "Act") in the context of an acquisition of control. 

Unless otherwise stated, all references to a statute are to the provisions of the Act, as amended to the date hereof.

You ask us to assume the following facts:
*     Canco is a taxable Canadian corporation pursuant to subsection 89(1) of the Act.
*     Canco operates a mining business in the Province of Quebec.
*     Canco’s taxation year for purposes of the Act and fiscal period for the purposes of the Quebec Mining Tax Act (“QMTA”) ends on December 31. 
*     On August 31, 2014, Canco was subject to an acquisition of control.  Under subsection 249(4), Canco’s taxation year was deemed to end immediately before that time for purposes of the Act.
*     Canco did not have a fiscal year end on August 31, 2014 for the purposes of the QMTA and therefore its fiscal year for the purposes of the QMTA will end on December 31, 2014.   

You enquire as to whether the tax payable pursuant to the QMTA relating to operations that occurred from January 1, 2014 to August 31, 2014 will be deductible, pursuant to paragraph 20(1)(v), in computing the income of Canco for its taxation year that ended on August 31, 2014.

Our comments

This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced).  It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R6, Advance Income Tax Rulings.

Pursuant to subsection 3900(2) of the Income Tax Regulations (the “Regulations”) and for the purpose of paragraph 20(1)(v) of the Act, the amount deductible by Canco for taxes levied pursuant to the QMTA for its taxation year that ended on August 31, 2014 should be equal to the total of all amounts of eligible tax paid or payable by Canco on its income for the taxation year from mining operations. Under subsection 3900(1) of the Regulations, income for the taxation year from mining operations is to be computed pursuant to the QMTA. 

Since the QMTA does not have a deeming provision similar to that under subsection 249(4), Canco will not have any tax paid or payable pursuant to the QMTA for activities that occurred between January 1, 2014 and August 31, 2014.  Indeed, for the purposes of the QMTA the basis for determining the amount of the liability of tax for a fiscal year is income for the entire fiscal year and must therefore be computed at the end of the fiscal year, which for the purposes of the QMTA is December 31, 2014.  Therefore, the eligible tax payable by Canco, pursuant to the QMTA, for its fiscal year ending on December 31, 2014 should not be deductible for income tax purposes for its taxation year that is deemed to have ended on August 31, 2014.

Such amount may however be deductible in computing Canco’s income for its taxation year that includes December 31, 2014.  In computing Canco’s income from a business (i.e. its Quebec mining operation) for its taxation year that includes December 31, 2014, there may be deducted, under paragraph 20(1)(v), such amount as is allowed by subsection 3900(2) of the Regulations that is applicable to that source of income (i.e. the Quebec mining operation). 

We hope this information is of assistance to you.

Yours truly,

Fiona Harrison, CPA, CA
Manager,
Resources Section
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy & Regulatory Affairs Branch

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