RE:RE:RE:Shoot me if I'm wrong, but Qualifying Expenditures
The most common form of qualifying expenditure in a mining context is what is commonly described as “grassroots” exploration expenditures: expenses incurred to determine the existence, location, extent or quality of a mineral resource in Canada, including in the course of prospecting, geological/geophysical/geochemical surveying, drilling, trenching, digging test pits or sampling,
but excluding any such expenses:
included in CDE;
- included in the cost of depreciable property; or
- related to a mine already producing in commercial quantities (or any extension of such a mine).
“Grassroots” CEE is by far the most common form of expenditure relevant for FTS purposes, because essentially only “grassroots” CEE is eligible for the “look-back” rule described below, which is used in most FTS transactions. Most FTS transactions are structured on the basis that “grassroots” CEE will be renounced to the FTS investors.
In addition to this “grassroots” CEE, expenditures that qualify for FTS transactions (but not the “look-back” rule described below) also include:
- pre-production CEE, being expenses incurred for the purpose of bringing a new mine into production in reasonable commercial quantities (including expense for clearing, removing overburden, stripping, sinking a mine share or constructing an adit or other underground entry), if incurred before the mine comes into production in reasonable commercial quantities, but excluding the cost of depreciable property and expenses related to a mine in commercial production; and
- CDE that is any expense incurred in sinking or excavating a mine shaft, main haulage way or similar underground work for continuing use in a Canadian mineral resource (except to the extent included in the cost of depreciable property), if built after the mine has come into production, or any expense of extending any such shaft, haulage way or work. The cost of a mineral resource property (which is included in CDE, and generally includes staking costs) does not qualify for FTS purposes, nor does any expense that is included in the cost of depreciable property.