This week the CRA issued four interpretations in the context of natural resource industries. <\/p>\n
o\tMining.<\/strong> In 2012-0462361I7<\/a>, the CRA was asked for its view on the meaning of the phrase “prime metal stage or its equivalent”. The concept is relevant for certain tax incentives available to the mining industry. The CRA confirmed that it follows the decision of the Federal Court of Appeal in Canadian Pacific Ltd. v. Canada 1994<\/em> F.C.J. 993, which held that the test is met when the mineral \u201chas been processed to the condition in which it meets the specifications of its consumers”. This reasoning was accepted in The Queen v. Gulf Canada Resources Limited<\/em>, 96 DTC 6065, where the court said \u201cthe equivalent of the prime metal stage for mineral production is that point where the production processes have produced a marketable, saleable commodity which meets the specifications of its consumers\u201d.<\/p>\n o\tShale Gas.<\/strong> In 2012-0459351E5<\/a>, the CRA was asked how the costs of drilling and completing a shale natural gas well (including \u201cfracking\u201d) would be treated for tax purposes. The CRA said that in the base case such costs would be considered a \u201cCanadian development expense\u201d, deductible at 30% per year (declining balance). However, if the drilling results either in (a) the discovery of a natural underground gas reservoir, or (b) a dry hole (or the well is abandoned within a specified time limit without having produced), then such costs could be a \u201cCanadian exploration expense\u201d 100% deductible against income in the year. Further, if a well is drilled for the purpose of applied research or experimental development of a new technology, such costs could qualify as \u201cscientific research and experimental development\u201d. <\/p>\n o\tElectrical Energy.<\/strong> In 2012-0465501E5<\/a>, the CRA was asked whether \u201cdistribution of electrical energy\u201d would include \u201ctransmission of electrical energy\u201d for purposes of the definition of Regulation 1100(26)(a). The latter provision describes a corporation whose principal business is, among other things, the sale, distribution<\/strong> or production of energy, including electricity. Citing the decisions in Northern and Central Gas Corporation Ltd.<\/em>, 87 DTC 5439, and Pacific Northern Gas Limited<\/em>, 91 DTC 5287, the CRA said that \u201cdistribution\u201d in this context should be interpreted in a broad and general sense (to include transmission), and should not<\/strong> be given the more restrictive meaning used by the natural gas industry to distinguish \u201ctransmission\u201d of natural gas and \u201cdistribution\u201d of natural gas.<\/p>\n