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Ottawa, August 13, 1996
Amendments Proposed to Tax Treatment of Ammonite
Related documents:
Natural Resources Minister Anne McLellan and Finance Minister Paul Martin today announced proposed changes to the income tax treatment of producers of ammonite gemstones.
"This is good news for the gemstone industry in Alberta," Minister McLellan said. "Ammonite is the official gemstone of Alberta, a rare stone found almost exclusively in my province ." Production of the province's official gemstone began in 1966, and it was internationally recognized as a gemstone in 1981.
"The proposed tax changes announced today will provide an important stimulus to this growing industry, and help encourage the exploration and development of ammonite gemstone depositis. These changes demonstrate the federal government's commitment to cooperation with the provinces, as well as to initiatives that will stimulate job creation and economic growth," Minister McLellan concluded.
Ammonites are an extinct shellfish, the fossils of which are found in certain sedimentary rocks, particularly in Alberta. The gemstones cut out from these fossils are iridescent in red and green, and are used in the manufacture of jewellery.
The proposed income tax changes will treat ammonite gemstones as minerals. Producers of such gemstones would thus be treated for federal tax purposes in the same way as producers of other gemstones. The change would allow these producers to claim accelerated depreciation and to access flow-through share financing rules. Flow-through share rules allow a mining or oil and gas corporation to give up deductions for income tax purposes in favour of investors subscribing for flow-through shares, providing they agree to fund qualifying exploration or development work to be performed by the corporation.
The proposed changes are to apply to taxation years beginning after 1996. Draft income tax legislation and explanatory notes containing details of the proposed changes are available.
___________________
For further information:
Alan Reed
Natural Resources Canada
(613) 995-9071
or
Simon Thompson
Department of Finance
(613) 992-0049
Draft Income Tax Amendments Relating to Ammonite Gemstone
1. (1) The definition "mineral" in subsection 248(1) of the Income Tax Act is replaced by the following:
"mineral"
«minéral»
"mineral" includes ammonite gemstone, bituminous sands, calcium chloride, coal, kaolin, oil sands, oil shale and silica, but does not include petroleum, natural gas or a related hydrocarbon not expressly referred to in this definition;
(2) Subparagraph (d)(ii) of the definition "mineral resource" in subsection 248(1) of the Act is replaced by the following:
- (ii) the principal mineral extracted is ammonite gemstone, calcium chloride, diamond, gypsum, halite, kaolin or sylvite, or
(3) Subsections (1) and (2) apply to taxation years and fiscal periods that begin after 1996, except that
- (a) for greater certainty, those subsections shall not result in a recharacterization of expenditures made or costs incurred in a taxation year or fiscal period that began before 1997 as Canadian exploration expense, Canadian development expense, Canadian exploration and development expense or foreign exploration and development expense or in an increase in any amount deductible under section 65 of the Act as a consequence of an expenditure made or cost incurred before 1997; and
(b) where, as a consequence of the application of those subsections, a person's property would, but for this paragraph, be recharacterized as Canadian resource property or foreign resource property at the beginning of the person's first taxation year or fiscal period that begins after 1996, for the purposes of the Act the property is deemed
-
- (i) to have been disposed of by the person immediately before that time for proceeds equal to its cost amount to the person at that time, and
(ii) to have been reacquired at that time by the person for the same amount.
Explanatory Notes to Draft Amendments to the Income Tax Act Relating to Ammonite Gemstone
ITA
248(1)
"mineral"
"mineral resource"
Subsection 248(1) of the Income Tax Act includes definitions of "mineral" and "mineral resource", which are used in the Act and the Income Tax Regulations for the purposes of determining a taxpayer's mining income.
The definition "mineral" is amended so that ammonite gemstone is included within its scope. Ammonite gemstone is a naturally-occurring substance which is obtained from the fossils of ammonite (an extinct shellfish). The gemstones that are cut from these fossils are iridescent in red and green.
The definition "mineral resource" is likewise amended so that a "mineral resource" includes deposits from which the main substance extracted is ammonite gemstone.
These amendments generally apply to taxation years that begin after 1996, subject to transition rules described below.
The first transition rule provides, for greater certainty, that the amendments do not result in the recategorization of previously-made resource expenditures or previously-incurred resource costs. Thus, for example, pre-1997 exploration expenses for ammonite gemstone deposits will not be included in a taxpayer's cumulative Canadian exploration expense after 1996. In addition, the amendments will not result in the creation of depletion pools that are deductible under section 65 of the Act.
The second transition rule allows for the conversion, on a rollover basis, from one category of property for income tax purposes to either Canadian resource property or foreign resource property. The conversion normally takes place at the beginning of taxation years that begin after 1996. Note, in this context, that subsection 13(5) already provides rules to allow transfers on a rollover basis between different classes of depreciable properties (including transfers resulting from changes to the law or regulations).
The intention of the second transition rule, in conjunction with subsection 13(5), is to provide for a fresh start in connection with properties that are recategorized for as a consequence of the changes with respect to ammonite gemstones. In this context, it is contemplated that these amendments may have the following effect:
- certain non-depreciable capital property (e.g., real property with substantial ammonite gemstone content) could be reclassified as "Canadian resource property" or "foreign resource property" for income tax purposes, and
- depreciable property of a class may be recategorized as depreciable property of another class.
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