Energy, Mines, and Resources

Subsection 102(5)(i) – Exploration & Pre-development Expenses

Quartz Mining Act, Section 102 – Annual Royalty
Interpretation Bulletin: Subsection 102(5)(i) – Exploration & Pre-development Expenses
January 26, 2007

Reference
Subsection 102(5) specifies the deductions and allowances to be made from the revenue of the mine to determine the mine’s profit for royalty calculations. Specifically, item (i) allows a deduction for:

the cost of actual work done in sinking new shafts, making new openings, workings or excavations of any kind, or of stripping, trenching or diamond drilling, in or on the land on which the mine is situated, or in or on any other land belonging to the same owner, holder, tenant, lessee, occupier, or operator in the Yukon, or the cost of any work that, in the opinion of the Minister, has for its object the opening up of mines or testing for ore or minerals.

Interpretation
Expenses for the type of work described in this subsection are deductible only in the calendar year in which they were incurred. Exploration and pre-development work in prior years are not allowed to be carried forward to future years.

Discussion
The calculation of the royalty owing under Section 102 is based on an annual basis, i.e. what the profit derived from the mine is in a given calendar year and what expenses were incurred in that same year. Accordingly, the actions and activities for which deductions may be made are to be read in the context of what occurred in the year in question. Therefore, the “new”, as used herein, is interpreted to mean those shafts, openings, workings and excavations of any kind, or any stripping, trenching or diamond drilling that were undertaken in that year to open up the mine or test for ore or minerals. From this perspective, none of the costs incurred for these activities prior to the calendar year would be eligible for deduction.

As well, use of the words “actual cost” in this subsection means that the costs eligible to be deducted are not a calculated value (i.e. a cost calculated and allocated over a period of time) but rather the actual costs incurred in that calendar year for those activities.

Finally, Section 102(7) states that “…unless a contrary intention appears, the operations, business, matters and things carried on, occurring or existing during the preceding calendar year shall be taken as fixing, assessing and ascertaining the royalty payable…”