Income Tax Regulations (C.R.C., c. 945)

DIVISION VIIIDetermination of Viscosity and Density

1107 For the purpose of the definition bituminous sands in subsection 248(1) of the Act, viscosity or density of hydrocarbons shall be determined using a number of individual samples (constituting a representative sampling of that deposit or those deposits, as the case may be, from which the taxpayer is committed to produce by means of one mine) tested

• (a) at atmospheric pressure;

• (b) at a temperature of 15.6 degrees Celsius; and

• (c) free of solution gas.

PART XIIResource and Processing Allowances

1200 For the purposes of section 65 of the Act, there may be deducted in computing the income of a taxpayer for a taxation year such of the amounts determined in accordance with sections 1201 to 1209 and 1212 as are applicable.

Earned Depletion Allowances

1201 In computing a taxpayer’s income for a taxation year there may be deducted such amount as he may claim not exceeding the lesser of

• (a) the aggregate of

  • (i) 25 per cent of the amount, if any, by which the taxpayer’s resource profits for the year exceed four times the total of amounts, if any, deducted under subsection 1202(2) in computing the taxpayer’s income for the year, and

  • (ii) the amount, if any, by which the aggregate of amounts included in computing the taxpayer’s income for the year under paragraphs 59(3.3)(a) and (b) of the Act exceeds the aggregate of amounts, if any, that may reasonably be considered to have been deducted under subsection 1202(2) by reason of subparagraph (b)(ii) thereof in computing the taxpayer’s income for the year; and

• (b) the aggregate of

  • (i) the taxpayer’s earned depletion base as of the end of the year, and

  • (ii) the amount, if any, by which

    • (A) the aggregate determined under paragraph 1202(4)(a) in respect of the taxpayer for the year

    exceeds

    • (B) the amount, if any, by which

      • (I) the aggregate of all amounts that would be determined under paragraphs 1205(1)(e) to (k)

      exceeds

      • (II) 33 1/3 per cent of the aggregate of all amounts that would be determined under paragraphs 1205(1)(a) to (d.2)

      in computing the taxpayer’s earned depletion base as of the end of the year.

• 1202 (1) For the purposes of computing the earned depletion base of a corporation, control of which has been acquired under circumstances described in subsection 66(11) of the Act, the amount by which the earned depletion base of the corporation at the time referred to in that subsection exceeds the aggregate of amounts otherwise deducted under section 1201 in computing its income for taxation years ending after that time and before control was so acquired shall be deemed to have been deducted under section 1201 by the corporation in computing its income for taxation years ending before such acquisition of control.

• (2) Subject to subsections (5) and (6), where after November 7, 1969 a corporation (in this subsection referred to as the “successor”) acquired a particular property (whether by way of a purchase, amalgamation, merger, winding-up or otherwise), there may be deducted by the successor in computing its income for a taxation year an amount not exceeding the aggregate of all amounts each of which is an amount determined in respect of an original owner of the particular property that is the lesser of

  • (a) the earned depletion base of the original owner immediately after the original owner disposed of the particular property (determined as if, in the case of a disposition after April 28, 1978 as a result of an amalgamation described in section 87 of the Act, the original owner existed after the time of disposition and no property was acquired or disposed of in the course of the amalgamation) to the extent of the amount thereof that was not

    • (i) deducted by the original owner or any predecessor owner of the particular property in computing income for any taxation year,

    • (ii) deducted by the successor in computing income for a preceding taxation year, or

    • (iii) otherwise deducted by the successor in computing income for the taxation year, and

  • (b) 25 per cent of the amount, if any, by which

    • (i) the part of the successor’s income for the year that can reasonably be regarded as attributable to

      • (A) the part of any amount included under paragraph 59(3.2)(c) of the Act in computing its income for the year that can reasonably be regarded as attributable to the disposition by it in the year or a preceding taxation year of any interest in or right to the particular property, to the extent that the proceeds of the disposition have not been included in determining an amount under this clause, paragraph (7)(g), clause 29(25)(d)(i)(A) of the Income Tax Application Rules or clause 66.7(1)(b)(i)(A) or (3)(b)(i)(A) or paragraph 66.7(10)(g) of the Act for a preceding taxation year,

      • (B) its reserve amount for the year in respect of the original owner and each predecessor owner, if any, of the particular property,

      • (C) production from the particular property, or

      • (D) processing described in subparagraph 1204(1)(b)(iii), (iv) or (v) with the particular property

      computed as if no deduction were allowed under section 29 of the Income Tax Application Rules or under any of sections 65 to 66.7 of the Act and as if that income did not include any amount designated under clause 66.7(2)(b)(ii)(A) of the Act,

    exceeds

    • (ii) the total of

      • (A) four times the total of all other amounts deducted under this subsection for the year that can reasonably be regarded as attributable to the part of the successor’s income for the year described in subparagraph (i), and

      • (B) the total of all amounts each of which is an amount deducted under subsection 66.7(1), (3), (4) or (5) of the Act or subsection 29(25) of the Income Tax Application Rules for the year that can reasonably be regarded as attributable to the part of the successor’s income for the year described in subparagraph (i).

• (3) Where in a taxation year ending after February 17, 1987 an original owner of a property disposes of the property in circumstances in which subsection (2) applies,

  • (a) the amount of the earned depletion base of the original owner determined immediately after the time of that disposition shall be deducted in determining the earned depletion base of the original owner at any time after the time that is immediately after the disposition;

  • (b) for the purposes of paragraph (2)(a), the earned depletion base of the original owner determined immediately after the original owner disposed of the property that was deducted in computing the original owner’s income for the year shall be deemed to be equal to the lesser of

    • (i) the amount deducted in respect of the disposition under paragraph (a), and

    • (ii) the amount, if any, by which

      • (A) the specified amount determined under subsection (4) in respect of the original owner for the year

      exceeds

      • (B) the aggregate of all amounts each of which is an amount determined under this paragraph in respect of any disposition made by the original owner before the disposition and in the year; and

  • (c) for greater certainty, any amount (other than the amount determined under paragraph (b)) that was deducted under section 1201 by the original owner for the year or a subsequent taxation year shall, for the purposes of paragraph (2)(a), be deemed not to be in respect of the earned depletion base of the original owner determined immediately after the original owner disposed of the particular property.

• (4) Where in a taxation year ending after February 17, 1987 an original owner of a property disposes of the property in circumstances in which subsection (2) applies, the lesser of

  • (a) the total of all amounts each of which is the amount, if any, by which

    • (i) an amount deducted under paragraph (3)(a) in respect of such a disposition in the year by the original owner

    exceeds

    • (ii) the amount, if any, designated by the original owner in a prescribed form filed with the Minister within six months after the end of the year in respect of the amount determined under subparagraph (i), and

  • (b) the amount, if any, deducted under section 1201 in computing the income of the original owner for the taxation year

  is the specified amount in respect of the original owner for the year for the purposes of paragraphs (3)(b) and 1205(1)(d.2).

• (5) Subsections (2), 1203(3), 1207(7) and 1212(4) do not apply

  • (a) in respect of a property acquired by way of an amalgamation or winding-up to which section 1214 applies;

  • (b) to permit, in respect of the acquisition by a corporation before February 18, 1987 of a property, a deduction by the corporation of an amount that the corporation would not have been entitled to deduct under this Part, if this Part, as it read in its application to taxation years ending before February 18, 1987, applied to taxation years ending after February 17, 1987; or

  • (c) in respect of a property acquired by purchase, amalgamation, merger, winding-up or otherwise, from a person who is exempt from tax under Part I of the Act on that person’s taxable income.

• (6) Subsections (2), 1203(3), 1207(7) and 1212(4) apply only to a corporation that has acquired a particular property

  • (a) where it acquired the particular property in a taxation year commencing before 1985 and, at the time it acquired the particular property, the corporation acquired the specified property of the person from whom it acquired the particular property;

  • (b) where it acquired the particular property from a person in a taxation year commencing after 1984 and, at the time it acquired the particular property, the corporation acquired

    • (i) all or substantially all of the Canadian resource properties of that person, or

    • (ii) where subparagraph (i) does not apply, the specified property of the person;

  • (c) where it acquired (other than in circumstances in which subparagraph (b)(ii) applies) the particular property after November 16, 1978 and in a taxation year ending before February 18, 1987 by any means other than by way of an amalgamation or winding-up and it and the person from whom it acquired the particular property have filed with the Minister a joint election under and in accordance with any of subsections 66(6), 66.1(4), 66.1(5), 66.2(3), 66.2(4), 66.4(3), and 66.4(4) of the Act as those subsections read in their application to that year;

  • (d) where it acquired the particular property after June 5, 1987 by way of an amalgamation or winding-up (other than in circumstances in which subparagraph (b)(ii) applies) and it has filed an election in the form prescribed for the purposes of paragraph 66.7(7)(c) of the Act with the Minister on or before the day on or before which the corporation is required to file a return of income pursuant to section 150 of the Act for its taxation year in which it acquired the particular property;

  • (e) where it acquired the particular property (other than by means of an amalgamation or winding-up or in circumstances in which subparagraph (b)(ii) applies) in a taxation year ending after February 17, 1987 and it and the person from whom it acquired the particular property have filed a joint election in the form prescribed for the purposes of paragraph 66.7(7)(e) of the Act with the Minister on or before the earlier of the days on or before which either of them is required to file a return of income pursuant to section 150 of the Act in respect of the irrespective taxation years that include the time of acquisition of the particular property; and

  • (f) where it acquired (other than by way of an amalgamation or winding-up) the particular property in circumstances in which subparagraph (b)(ii) applies and it and the person from whom it acquired the particular property agree to have subsection (2), 1203(3), 1207(7) or 1212(4), as the case may be, apply to them and notify the Minister in writing of the agreement in their returns of income under Part I of the Act for their respective taxation years that include the time of acquisition of the particular property.

• (7) Where at any time after November 12, 1981

  • (a) control of a corporation is considered for the purposes of subsection 66.7(10) of the Act to have been acquired by a person or group of persons, or

  • (b) a corporation ceases to be exempt from tax under Part I of the Act on its taxable income,

  for the purposes of section 1201, this section and section 1205,

  • (c) the corporation shall be deemed after that time to be a successor (within the meaning assigned by subsection (2)) that had, at that time, acquired all the properties owned by the corporation immediately before that time from an original owner thereof;

  • (d) a joint election shall be deemed to have been filed in accordance with subsection (6) in respect of the acquisition;

  • (e) the earned depletion base of the corporation immediately before that time shall be deemed not to be the earned depletion base of the corporation immediately after that time but to be the earned depletion base of the original owner immediately after that time;

  • (f) [Repealed, SOR/93-120, s. 1]

  • (g) where the corporation (in this paragraph referred to as the “transferee”) was, immediately before and at that time,

    • (i) a parent corporation (within the meaning assigned by subsection 87(1.4) of the Act), or

    • (ii) a subsidiary wholly-owned corporation (within the meaning assigned by subsection 87(1.4) of the Act)

    of a particular corporation (in this paragraph referred to as the “transferor”), if both corporations agree to have this paragraph apply to them in respect of a taxation year of the transferor ending after that time and notify the Minister in writing of the agreement in the return of income under Part I of the Act of the transferor for that year, the transferor may, if throughout that year the transferee was such a parent corporation or subsidiary wholly-owned corporation of the transferor, designate in favour of the transferee, in respect of that year, for the purpose of making a deduction under subsection (2) in respect of expenditures incurred by the transferee before that time and when it was such a parent corporation or subsidiary wholly-owned corporation of the transferor, an amount not exceeding such portion of the amount that would be its income for the year, if no deductions were allowed under any of section 29 of the Income Tax Application Rules, and sections 65 to 66.7 of the Act, that may reasonably be regarded as being attributable to

    • (iii) the production from Canadian resource properties owned by the transferor immediately before that time,

    • (iv) the disposition in the year of any Canadian resource properties owned by the transferor immediately before that time, and

    • (v) such processing as is described in subparagraph 1204(1)(b)(iii), (iv), or (v) with property owned by the transferor immediately before that time

    to the extent that such portion of the amount so designated is not designated under this paragraph in favour of any other taxpayer or under paragraph 66.7(10)(g) of the Act in favour of any taxpayer, and the amount so designated shall be deemed, for the purposes of determining the amount under subsection (2),

    • (vi) to be income from the sources described in subparagraph (iii), (iv) or (v), as the case may be, of the transferee for its taxation year in which that taxation year of the transferor ends, and

    • (vii) not to be income from the sources described in subparagraph (iii), (iv) or (v), as the case may be, of the transferor for that year;

  • (h) where, immediately before and at that time, the corporation (in this paragraph referred to as the “transferee”) and another corporation (in this paragraph referred to as the “transferor”) were both subsidiary wholly-owned corporations (within the meaning assigned by subsection 87(1.4) of the Act) of a particular parent corporation (within the meaning assigned by subsection 87(1.4) of the Act), if the transferee and the transferor agree to have this paragraph apply to them in respect of a taxation year of the transferor ending after that time and notify the Minister in writing of the agreement in the return of income under Part I of the Act of the transferor for that year, paragraph (g) shall apply for that year to the transferee and transferor as though one were the parent corporation (within the meaning assigned by subsection 87(1.4) of the Act) of the other; and

  • (i) where that time is after January 15, 1987 and at that time the corporation was a member of a partnership that owned a property at that time

    • (i) for the purposes of paragraph (c), the corporation shall be deemed to have owned immediately before that time that portion of the property owned by the partnership at that time that is equal to its percentage share of the aggregate of amounts that would be paid to all members of the partnership if it were wound up at that time, and

    • (ii) for the purposes of clauses (2)(b)(i)(C) and (D) for a taxation year ending after that time, the lesser of

      • (A) its share of the part of the income of the partnership for the fiscal period of the partnership ending in the year that may reasonably be regarded as being attributable to the production from the property or to such processing as is described in subparagraph 1204(1)(b)(iii), (iv) or (v) with the property, and

      • (B) an amount that would be determined under clause (A) for the year if its share of the income of the partnership for the fiscal year of the partnership were determined on the basis of the percentage share referred to in subparagraph (i)

      shall be deemed to be income of the corporation for the year that may reasonably be attributable to production from the property or to such processing as is described in subparagraph 1204(1)(b)(iii), (iv) or (v) with the property.

• (8) For the purposes of subsections (1) and (7), where a corporation acquired control of another corporation after November 12, 1981 and before 1983 by reason of the acquisition of shares of the other corporation pursuant to an agreement in writing concluded on or before November 12, 1981, the corporation shall be deemed to have acquired such control on or before November 12, 1981.

• (9) Where, at any time,

  • (a) control of a taxpayer that is a corporation has been acquired by a person or group of persons,

  • (b) a taxpayer has disposed of all or substantially all of the taxpayer’s Canadian resource properties, or

  • (c) a taxpayer has disposed of the specified property of the taxpayer,

  and, before that time, the taxpayer or a partnership of which the taxpayer was a member acquired a property and it may reasonably be considered that one of the main purposes of the acquisition was to avoid any limitation provided in subsection (2) on the deduction in respect of the earned depletion base of the taxpayer or of a corporation referred to as a transferee in paragraph (7)(g) or (h), the taxpayer or the partnership, as the case may be, shall be deemed, for the purposes of applying subsection (2) to or in respect of the taxpayer, not to have acquired the property.

• (10) Where in a particular taxation year a predecessor owner of a property disposes of it to a corporation in circumstances in which subsection (2) applies, for the purposes of applying subsection (2) to the predecessor owner for a taxation year ending after February 17, 1987 in respect of its acquisition of the property, the predecessor owner shall be deemed, after the disposition, never to have acquired the property except for the purposes of making a deduction under subsection (2) for the particular year.

• (11) Where at any time a property is acquired by a person in circumstances in which subsection (2) does not apply, every person who was an original owner or predecessor owner of the property by reason of having disposed of the property before that time shall, for the purposes of applying this Part to or in respect of the person or any other person who after that time acquires the property, be deemed after that time not to be an original owner or predecessor owner of the property by reason of having disposed of the property before that time.