Deductions and allowances
 7. (1) In calculating the net value of the output of a diamond mine for a fiscal year under section 6, only the following amounts and the amount of the Ontario community and economic development incentive for the fiscal year, as determined under subsection (2), may be deducted in respect of costs incurred by the operator of the diamond mine: 1.  The costs incurred during the fiscal year for cleaning, sorting, valuing, marketing and selling diamonds produced as part of the output of the diamond mine. 2.  The costs incurred during the fiscal year for insurance, storage, handling and transportation of the diamonds produced as part of the output of the diamond mine to the processing plant or market. 3.  The costs incurred during the fiscal year in mining and processing diamonds from the diamond mine. 4.  The costs incurred during the fiscal year for repair or maintenance at the diamond mine or rehabilitation of the mining property of the diamond mine. 5.  General and indirect costs incurred during the fiscal year for property, employees and operations at the diamond mine that are not otherwise allocated to operating costs. 6.  Exploration costs incurred during the fiscal year in respect of royalty land, other than royalty land on the mining property of the diamond mine, if those costs have not been otherwise claimed by the operator as an allowance or deduction under this section, in an amount not exceeding 10 per cent of the net value of the output of the diamond mine multiplied by the operator’s share of that output, calculated, i.  after deducting the costs referred to in paragraphs 1 to 5, and ii.  before deducting any exploration costs, depreciation allowance, qualifying environmental trust contribution allowance, development allowance or processing allowance. 7.  Subject to clause (5) (a), clause (8) (d), paragraph 5 of subsection (9) and subsection (10), a depreciation allowance in respect of the depreciable assets of the diamond mine and the depreciable assets of any facilities in Ontario that are used for processing diamonds produced as part of the output from the diamond mine, in an amount not exceeding the undeducted balance of the cost of those depreciable assets at the end of the fiscal year. 8.  A development allowance not exceeding the undeducted balance, at the end of the fiscal year, of the sum of, i.  exploration costs incurred, before the date of commencement of production, on the mining property as constituted on the date of commencement of production and not deducted under paragraph 6 in respect of any other lands, ii.  all costs incurred before the date of commencement of production for the purposes of bringing the diamond mine into production, less the total of, A.  the market value of any diamonds produced from the mining property of the diamond mine that were sold, transferred or removed from the diamond mine before the date of commencement of production, and B.  the market value of any diamonds produced from the mining property of the diamond mine that are in inventory on the date of commencement of production, iii.  exploration costs incurred on the mining property of the diamond mine after the date of commencement of production, iv.  costs incurred after the date of commencement of production for workings designed for continuing use, including the clearing, removing or stripping of overburden from a new deposit at the diamond mine, the sinking, excavation or extension of a mine shaft, main haulage way or similar underground work, the construction of an adit or other underground entry and the construction of a road or of a tailings disposal structure at the diamond mine, and v.  where diamonds are being produced in reasonable commercial quantities from a mining claim or property subject to a lease or patent that was incorporated into the mining property after the date of commencement of production, A.  if the mining claim, lease or patent was purchased, the lesser of the purchase price of the mining claim, lease or patent, and the amount referred to in sub-subparagraph B, or B.  in any other case, the costs referred to in subparagraphs i and ii that were incurred in respect of the incorporated mining claim, lease or patent and that have not been claimed in a prior fiscal year or under another provision of this Regulation. 9.  A qualifying environmental trust contribution allowance not exceeding the undeducted balance of the qualifying environmental trust at the end of the fiscal year. 10.  If diamonds are processed by the operator of the diamond mine before their sale, transfer or presentation to the diamond royalty valuer for valuation, an annual processing allowance equal to the lesser of, i.  8 per cent of the original cost of processing assets owned by the operator at the end of the fiscal year that were used during the fiscal year for the processing of output of the diamond mine, and ii.  65 per cent of the net value of the output of the diamond mine, as determined in accordance with the formula set out in subsection 6 (1) but using only amounts referred to in paragraphs 1 to 9 to determine the value of “I” in the formula. 11.  If diamonds from the diamond mine are processed at another diamond mine in Ontario, or at any other facilities located in Ontario that are owned by the operator or by a person related to the operator, the total of, i.  the amount of the reduction under clause (8) (b) in the amount of the  operating costs of the other diamond mine or facilities that may be deducted to the extent that the amount of the reduction relates to the processing of diamonds produced as part of the output of the diamond mine, ii.  the amount by which the processing allowance for the other diamond mine or facilities is reduced under clause (8) (c) to the extent that the reduction relates to the processing of diamonds produced as part of the output of the diamond mine, and iii.  the amount by which the undeducted balance of the original cost of the other diamond mine’s or facilities’ depreciable assets is reduced under clause (8) (d) to the extent that the reduction relates to the processing of diamonds produced as part of the output of the diamond mine.  O. Reg. 323/07, s. 7 (1); O. Reg. 156/16, s. 1. (2) The amount of an operator’s Ontario community and economic development incentive for a fiscal year in respect of a diamond mine is the sum of the following amounts: 1.  The amount of the operator’s undeducted balance of qualifying donations and qualifying expenditures in respect of the diamond mine, as determined at the end of the fiscal year. 2.  An allowance for the fiscal year equal to the lesser of, i.  15 per cent of the sum of all the amounts claimed by the operator for the year under paragraphs 1, 2, 3, 4, 5, 6, 7, 8, 9 and 11 of subsection (1) and paragraph 1 of this subsection, and ii.  20 per cent of the amount that would be the net value of the output of the diamond mine for the fiscal year before the deduction of any amount determined under this paragraph, multiplied by the operator’s share of that output.  O. Reg. 323/07, s. 7 (2). (3) Where the operator of a diamond mine claims a deduction for costs incurred in a transaction with a related person, the costs allowed as a deduction under this section shall be the amount of the actual costs incurred by the related person, exclusive of any profit, gain or commission to the related person or to any other related person.  O. Reg. 323/07, s. 7 (3). (4) A depreciation allowance shall not be claimed in respect of a depreciable asset before the fiscal year in which it is first used in the operations of the diamond mine.  O. Reg. 323/07, s. 7 (4). (5) Where an operator disposes of, or receives insurance proceeds in respect of, assets for which a depreciation allowance has been claimed, (a)  the undeducted balance of the depreciable assets shall be reduced by the lesser of, (i)  the proceeds of disposition or the insurance proceeds, as the case may be, and (ii)  the original cost of the asset; and (b)  the amount, if any, by which the lesser of the amounts referred to in subclauses (a) (i) and (ii) exceeds the undeducted balance of the depreciable assets in the fiscal year in which the assets were disposed of shall be included in the net value of the output of the diamond mine for that fiscal year.  O. Reg. 323/07, s. 7 (5). (6) For the purposes of subsection (5), where the operator of a diamond mine sells an asset for which a depreciation allowance has been claimed by a related person, or removes the asset from the diamond mine, the proceeds of disposition of the asset shall be the amount that could be expected to be realized from the sale of the asset to a person not related to the operator.  O. Reg. 323/07, s. 7 (6). (7) Where the operator of a diamond mine purchases an asset from a related person that is eligible for a depreciation allowance or transfers to the diamond mine an asset from another mine owned by the operator, the cost of the asset for the purposes of calculating a depreciation allowance is the amount that the operator could be expected to pay to purchase that asset from a person not related to the operator.  O. Reg. 323/07, s. 7 (7). (8) Where, in a particular fiscal year, the operator of a diamond mine uses the depreciable assets of the diamond mine or any processing assets located in Ontario that are used for the processing of diamonds produced as part of the output of the diamond mine to process diamonds other than those produced as part of the output of the diamond mine, (a)  the revenue earned from the sale or processing of diamonds not produced from the diamond mine shall not be included in the net value of the output of the diamond mine; (b)  the deductions for costs incurred during the fiscal year under paragraphs 1 to 5 of subsection (1) shall be reduced by any costs incurred for the processing of diamonds not produced as part of the output of the diamond mine; (c)  the original cost of the processing assets used to calculate the amount under subparagraph 10 i of subsection (1) for the fiscal year shall be reduced by an amount calculated using the formula, A × B/C where, “A”  is the original cost of the processing assets, “B”  is the sum of the costs described in paragraphs 1 to 5 of subsection (1) that are incurred during the fiscal year in relation to processing diamonds not produced at the diamond mine, and “C’  is the sum of the costs described in paragraphs 1 to 5 of subsection (1) that are incurred during the fiscal year in processing any diamonds at the diamond mine; (d)  the undeducted balance of the original cost of the diamond mine’s depreciable assets at the end of the fiscal year shall be reduced by an amount calculated using the formula, D × E/F where, “D”  is the original cost of the depreciable assets used to process diamonds not produced at the diamond mine, “E”  is the sum of the costs described in paragraphs 1 to 5 of subsection (1) that are incurred during the fiscal year and all previous fiscal years in relation to processing diamonds not produced at the diamond mine, and “F”  is the sum of the costs described in paragraphs 1 to 5 of subsection (1) that are incurred during the fiscal year and all previous fiscal years in processing any diamonds at the diamond mine. O. Reg. 323/07, s. 7 (8). (9) The following rules apply if the output of a diamond mine includes diamonds produced from royalty land and diamonds produced from land that is not royalty land: 1.  The deductions for costs incurred during the fiscal year under paragraphs 1 to 5 of subsection (1) shall be reduced by any costs incurred for the production or processing of diamonds from land that is not royalty land. 2.  The original cost of the processing assets used to calculate the amount under subparagraph 10 i of subsection (1) for the fiscal year shall be reduced by an amount calculated using the formula, G × H/I where, “G”  is the original cost of the processing assets, “H”  is the sum of the costs described in paragraphs 1 to 5 of subsection (1) that are incurred during the fiscal year in relation to processing diamonds produced from land that is not royalty land, and “I”  is the sum of the costs described in paragraphs 1 to 5 of subsection (1) that are incurred during the fiscal year in processing diamonds at the diamond mine. 3.  The undeducted balance of the costs eligible for the diamond mine’s development allowance under paragraph 8 of subsection (1) for the fiscal year shall be reduced by an amount calculated using the formula, J × K/L where, “J”  is the amount of costs eligible for the diamond mine’s development allowance under subparagraph 8 ii of subsection (1), “K”  is the sum of the costs described in paragraphs 1 to 5 of subsection (1) that are incurred during the fiscal year and all previous fiscal years in relation to the production or processing of diamonds produced from land that is not royalty land, and “L”  is the sum of the costs described in paragraphs 1 to 5 of subsection (1) that are incurred during the fiscal year and all prior fiscal years in the production and processing of diamonds at the diamond mine. 4.  The undeducted balance of the costs eligible for the diamond mine’s development allowance under paragraph 8 of subsection (1) for the fiscal year shall be reduced by an amount calculated using the formula, M × N/P where, “M”  is the amount of costs of the workings eligible for the diamond mine’s development allowance under subparagraph 8 iv of subsection (1) used in the production or processing of diamonds produced from land that is not royalty land, “N”  is the sum of the costs described in paragraphs 3 to 5 of subsection (1) that are incurred during the fiscal year and all previous fiscal years in relation to the use of those workings in the production or processing of diamonds produced from land that is not royalty land, and “P”  is the sum of the costs described in paragraphs 3 to 5 of subsection (1) that are incurred during the fiscal year and all previous fiscal years in relation to the use of those workings in the production and processing of diamonds at the diamond mine. 5.  The undeducted balance of the original cost of the diamond mine’s depreciable assets at the end of the fiscal year shall be reduced by an amount calculated using the formula, Q × R/S where, “Q”  is the original cost of the depreciable assets used to produce or process diamonds produced from land that is not royalty land, “R”  is the sum of the costs described in paragraphs 1 to 5 of subsection (1) that are incurred during the fiscal year and all previous fiscal years in relation to the production or processing of diamonds produced from land that is not royalty land, and “S”  is the sum of the costs described in paragraphs 1 to 5 of subsection (1) that are incurred during the fiscal year and all previous fiscal years in the production and processing of diamonds at the diamond mine. O. Reg. 323/07, s. 7 (9). (10) Each of the adjustments referred to in clause (8) (d) and paragraphs 3, 4 and 5 of subsection (9) shall be calculated at the end of each fiscal year of the diamond mine and the difference between the amount calculated for a fiscal year and the amount calculated for the previous fiscal year shall be added or subtracted, as the case may be, in determining the undeducted balance of the depreciable assets for the fiscal year or the undeducted balance of the costs eligible for the development allowance for the fiscal year, as the case may be.  O. Reg. 323/07, s. 7 (10). (11) Despite
any other subsection of this section, no deduction or allowance shall be made or claimed in respect of a diamond mine in relation to, (a)  the capital costs of depreciable assets, other than the amount in respect of depreciable assets described in paragraph 7 of subsection (1) that may be deducted under that paragraph; (b)  depletion in the value of the diamond mine or mining property by reason of exhaustion of the diamonds; (c)  where the operator of the diamond mine is a corporation, (i)  remuneration and travel costs of directors, (ii)  stock transfer agents’ fees, (iii)  shareholders’ meetings or the preparation of shareholders’ reports, and (iv)  legal, accounting and other costs incurred in connection with incorporations, reorganizations, financings or security or stock issues; (d)  interest on any debt, including an overdraft, loan, mortgage, advance, debenture or bond, that is capitalized or expensed for accounting purposes; (e)  remuneration of executive officers, administrative and consulting costs and costs in respect of offices not located at the diamond mine, unless that remuneration or those costs are directly related to operations of the diamond mine or to the marketing and selling of diamonds produced as part of the output of the diamond mine; (f)  taxes on profits, property or capital, royalties or payments in lieu of the taxes or royalties, and any interest or penalties applicable thereto, paid to any level of government and the cost of preparing returns in respect of thereof, except for customs duties, sales and excise taxes not otherwise refundable to the operator and any taxes related to the employment of employees, and the cost of preparing a return in respect of those taxes; (g)  royalties paid for the use of mining property or royalties calculated on revenue, production or profits of the diamond mine and the cost of calculating those royalties; (h)  except to the extent permitted under subsection (2), payments made to an organization, community, municipality or corporation, including an aboriginal organization, community or corporation, that are not attributable to the provision of goods and services directly related to the development and operation of the diamond mine or to prospecting and exploration on land in Ontario; (i)  payments made for the use or lease of, or access to, the surface of the land on which the diamond mine is located; (j)  discounts on bonds, debentures, shares or sales of receivables; (k)  increases in reserves or provisions for contingencies, other than in respect of a qualifying environmental trust; (l)  dues and memberships for persons other than employees involved in the operation of the diamond mine; (m)  insurance premiums that are not applicable to diamonds produced as part of the output of the diamond mine; (n)  costs incurred during the fiscal year to produce revenue that does not form part of the net value of the output of the diamond mine; (o)  subject to subparagraph 8 v of subsection (1), the purchase price of a mining claim, lease, patent or mine; (p)  the purchase price of any financial instrument; (q)  except to the extent permitted under subsection (2), charitable donations; (r)  advertising costs not directly identified with the output of the diamond mine; (s)  any cost not evidenced in accordance with generally accepted auditing practices; (t)  the cost of inventories of fuel, other consumables and spare parts that have not been consumed in the operation of the diamond mine; (u)  the costs of staking or recording a claim, or the cost of surveying the claim for the purposes of taking it to lease; (v)  rent paid for a leased or patented mining claim; (w)  the cost of preparing financial statements; (x)  any cost incurred in respect of any diamonds after the last valuation of the diamonds by a diamond royalty valuer if the diamonds, (i)  have been sold or transferred to a person related to the operator, (ii)  have been sold or transferred to a person not related to the operator and satisfactory evidence of the sale was not provided to the Minister, or (iii)  were cut and polished before their sale or transfer; (y)  any costs related to public, community or government relations; (z)  a fine or penalty imposed under the law of a country or of a political subdivision of a country, including a state, province and territory, by any person or public body that has authority to impose the fine or penalty; (z.1)  an outlay made or expense incurred for the purpose of doing anything that is an offence under section 3 of the Corruption of Foreign Public Officials Act (Canada) or under any of sections 119 to 121, 123 to 125, 393 and 426 of the Criminal Code (Canada) or an offence under section 465 of the Criminal Code (Canada) as it relates to an offence described in any of those sections; or (z.2)  any costs that have been claimed by an operator as a deduction or allowance under the Mining Tax Act.  O. Reg. 323/07, s. 7 (11).