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Canada

19.A99. Under former legislation, the income of a mine was exempt for a period of three years from the time when the mine commenced reasonable commercial production. This has been replaced by the earned depletion allowance. Similarly, prospectors and contributors were exempt from tax on sale of mining properties in certain circumstances. Under present legislation, they continue to receive special treatment, but it is by way of deferment of tax and capital gains treatment rather than exemption from tax. This special treatment is provided only if they receive shares in consideration of the transfer of their interest in the mining property.

19.A100. If cash or another asset is received, it may be treated as property income or capital according to general law principles.

19.A101. A prospector must be an individual while a contributor (or ‘grubstaker’) may be an individual or a corporation. Such persons, if they acquire an interest in a mining (not oil or gas) property through the prospecting or financing activity and dispose of that interest to a corporation for its shares, are not required to include in income any amount in respect of the shares received. However, the shares are deemed to have a zero cost to the recipient and the issue of shares is regarded as a zero cost to the acquiring corporation. Thus, subsequent sales (i) of the shares by the prospector or contributor, and (ii) of the mining interest by the corporation, are more heavily taxed than they otherwise would be. Further, the corporation is not entitled to any deduction in respect of its costs of acquiring the mining right.

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