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Income Tax Act (R.S.C., 1985, c. 1 (5th Supp.))

Full Document:  

Act current to 2022-05-02 and last amended on 2021-12-17. Previous Versions

PART IIncome Tax (continued)

DIVISION BComputation of Income (continued)

SUBDIVISION EDeductions in Computing Income (continued)

Marginal note:Exploration and development shares

  •  (1) Any shares of the capital stock of a corporation or any interest in any such shares or right thereto acquired by a taxpayer under circumstances described in paragraph (i) of the definition Canadian exploration expense in subsection 66.1(6), paragraph (g) of the definition Canadian development expense in subsection 66.2(5) or paragraph (c) of the definition Canadian oil and gas property expense in subsection 66.4(5)

    • (a) shall, if acquired before November 13, 1981, be deemed

      • (i) not to be a capital property of the taxpayer,

      • (ii) subject to subsection 142.6(3), to be inventory of the taxpayer, and

      • (iii) to have been acquired by the taxpayer at a cost to the taxpayer of nil; and

    • (b) shall, if acquired after November 12, 1981, be deemed to have been acquired by the taxpayer at a cost to the taxpayer of nil.

  • Marginal note:Deductions from paid-up capital

    (2) If, at any time after May 23, 1985, a corporation has issued a share of its capital stock under circumstances described in paragraph (i) of the definition Canadian exploration expense in subsection 66.1(6), paragraph (g) of the definition Canadian development expense in subsection 66.2(5) or paragraph (c) of the definition Canadian oil and gas property expense in subsection 66.4(5) or has issued a share of its capital stock on the exercise of an interest in or right to — or, for civil law, a right in or to — such a share granted under circumstances described in any of those paragraphs, in computing, at any particular time after that time, the paid-up capital in respect of the class of shares of the capital stock of the corporation that included that share

    • (a) there shall be deducted the amount, if any, by which

      • (i) the increase as a result of the issue of the share in the paid-up capital, determined without reference to this subsection as it applies to the share, in respect of all of the shares of that class

      exceeds

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

        • (A) the total amount of consideration received by the corporation in respect of the share, including any consideration for the interest or right in respect of the share

        exceeds

        • (B) 50% of the amount of the expense referred to in paragraph (i) of the definition Canadian exploration expense in subsection 66.1(6), paragraph (g) of the definition Canadian development expense in subsection 66.2(5) or paragraph (c) of the definition Canadian oil and gas property expense in subsection 66.4(5) that was incurred by a taxpayer who acquired the share or the interest or right on the exercise of which the share was issued, as the case may be, pursuant to an agreement with the corporation under which the taxpayer incurred the expense solely as consideration for the share, interest or right, as the case may be; and

    • (b) there shall be added an amount equal to the lesser of

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

        • (A) the total of all amounts each of which is an amount deemed by subsection 84(3), (4) or (4.1) to be a dividend on shares of that class paid by the corporation after May 23, 1985 and before the particular time

        exceeds

        • (B) the total that would be determined under clause (A) if this Act were read without reference to paragraph 66.3(2)(a), and

      • (ii) the total of all amounts each of which is an amount required by paragraph 66.3(2)(a) to be deducted in computing the paid-up capital in respect of that class of shares after May 22, 1985 and before the particular time.

  • Marginal note:Cost of flow-through shares

    (3) Any flow-through share (within the meaning assigned by subsection 66(15)) of a corporation acquired by a person who was a party to the agreement pursuant to which it was issued shall be deemed to have been acquired by the person at a cost to the person of nil.

  • Marginal note:Paid-up capital

    (4) Where, at any time after February, 1986, a corporation has issued a flow-through share (within the meaning assigned by subsection 66(15)), in computing, at any particular time after that time, the paid-up capital in respect of the class of shares of the capital stock of the corporation that included that share

    • (a) there shall be deducted the amount, if any, by which

      • (i) the increase as a result of the issue of the share in the paid-up capital, determined without reference to this subsection as it applies to the share, in respect of all of the shares of that class

      exceeds

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

        • (A) the total amount of consideration received by the corporation in respect of the share

        exceeds

        • (B) 50% of the total of the expenses that were renounced by the corporation under subsection 66(12.6), (12.601), (12.62) or (12.64) in respect of the share; and

    • (b) there shall be added an amount equal to the lesser of

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

        • (A) the total of all amounts each of which is an amount deemed by subsection 84(3), (4) or (4.1) to be a dividend on shares of that class paid by the corporation after February, 1986 and before the particular time

        exceeds

        • (B) the total that would be determined under clause (A) if this Act were read without reference to paragraph 66.3(4)(a), and

      • (ii) the total of all amounts each of which is an amount required by paragraph 66.3(4)(a) to be deducted in computing the paid-up capital in respect of that class of shares after February, 1986 and before the particular time.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • R.S., 1985, c. 1 (5th Supp.), s. 66.3
  • 1994, c. 8, s. 7
  • 1995, c. 21, s. 51
  • 2013, c. 34, s. 114

Marginal note:Recovery of costs

  •  (1) For the purposes of the description of B in the definition cumulative Canadian oil and gas property expense in subsection 66.4(5) and the description of L in the definition cumulative Canadian development expense in subsection 66.2(5) and for the purpose of subparagraph 64(1.2)(a)(ii) of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, as it applies to dispositions occurring before November 13, 1981, the amount determined under this subsection in respect of a taxpayer for a taxation year is the amount, if any, by which

    • (a) the total of all amounts referred to in the descriptions of E to J in the definition cumulative Canadian oil and gas property expense in subsection 66.4(5) that are deducted in computing the taxpayer’s cumulative Canadian oil and gas property expense at the end of the year

    exceeds the total of

    • (b) all amounts referred to in the descriptions of A to D.1 in the definition cumulative Canadian oil and gas property expense in subsection 66.4(5) that are included in computing the taxpayer’s cumulative Canadian oil and gas property expense at the end of the year, and

    • (c) the total determined under subparagraph 66.7(12.1)(c)(i) in respect of the taxpayer for the year.

  • Marginal note:Deduction for cumulative Canadian oil and gas property expense

    (2) A taxpayer may deduct, in computing the taxpayer’s income for a taxation year, such amount as the taxpayer may claim not exceeding the total of

    • (a) the lesser of

      • (i) the total of

        • (A) the taxpayer’s cumulative Canadian oil and gas property expense at the end of the year, and

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

          • (I) the total determined under subparagraph 66.7(12.1)(c)(i) in respect of the taxpayer for the year

          exceeds

          • (II) the amount that would, but for paragraph 66.4(1)(c), be determined under subsection 66.4(1) in respect of the taxpayer for the year, and

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

        • (A) an amount included in the taxpayer’s income for the year by virtue of a disposition in the year of inventory described in section 66.3 that was a share or any interest in or right to — or, for civil law, any right in or to — a share acquired by the taxpayer under circumstances described in paragraph (c) of the definition Canadian oil and gas property expense in subsection (5), or

        • (B) an amount included by virtue of paragraph 12(1)(e) in computing the taxpayer’s income for the year to the extent that it relates to inventory described in clause (A)

        exceeds

        • (C) the total of all amounts deducted as a reserve by virtue of paragraph 20(1)(n) in computing the taxpayer’s income for the year to the extent that the reserve relates to inventory described in clause (A);

    • (b) 10% of the amount, if any, by which the amount determined under subparagraph 66.4(2)(a)(i) exceeds the amount determined under subparagraph 66.4(2)(a)(ii); and

    • (c) the amount determined by the formula

      A(B − C)

      where

      A
      is
      • (i) for taxation years that end before 2024, 5%,

      • (ii) for taxation years that begin before 2024 and end after 2023, the amount determined by the formula

        0.05(I/J) + 0.025(K/J)

        where

        I
        is the total of all accelerated Canadian oil and gas property expenses incurred by the taxpayer before 2024 and in the taxation year,
        J
        is the total of all accelerated Canadian oil and gas property expenses incurred by the taxpayer in the taxation year, and
        K
        is the total of all accelerated Canadian oil and gas property expenses incurred by the taxpayer after 2023 and in the taxation year, and
      • (iii) for taxation years that begin after 2023, 2.5%,

      B
      is the total of all accelerated Canadian oil and gas property expenses incurred by the taxpayer in the taxation year, and
      C
      is the amount determined by the formula

      (D − E) − (F − G − H)

      where

      D
      is the total of the amounts determined for E to J in the definition cumulative Canadian oil and gas property expense in subsection (5) at the end of the taxation year,
      E
      is the total of the amounts determined for E to J in the definition cumulative Canadian oil and gas property expense in subsection (5) at the beginning of the taxation year,
      F
      is the total of the amounts determined for A to D.1 in the definition cumulative Canadian oil and gas property expense in subsection (5) at the end of the taxation year,
      G
      is the total of the amounts determined for A to D.1 in the definition cumulative Canadian oil and gas property expense in subsection (5) at the end of the preceding taxation year, and
      H
      is the amount determined for B.
  • Marginal note:Definitions

    (5) In this section,

    accelerated Canadian oil and gas property expense

    accelerated Canadian oil and gas property expense, of a taxpayer, means any cost or expense incurred by the taxpayer during a taxation year, if the cost or expense

    • (a) qualifies as a Canadian oil and gas property expense at the time it is incurred, other than

      • (i) an expense in respect of which the taxpayer is a successor, within the meaning of subsection 66.7(5), and

      • (ii) a cost in respect of a Canadian resource property acquired by the taxpayer, or a partnership in which the taxpayer is a member, from a person or partnership with which the taxpayer does not deal at arm’s length, and

    • (b) is incurred after November 20, 2018 and before 2028; (frais à l’égard de biens canadiens relatifs au pétrole et au gaz accélérés)

    Canadian oil and gas property expense

    Canadian oil and gas property expense of a taxpayer means any cost or expense incurred after December 11, 1979 that is

    • (a) the cost to the taxpayer of, including any payment for the preservation of a taxpayer’s rights in respect of, any property described in paragraph (a), (c) or (d) of the definition Canadian resource property in subsection 66(15) or any right to or interest in — or, for civil law, any right in or to — the property (other than a right or an interest that the taxpayer has by reason of being a beneficiary under a trust or a member of a partnership), or an amount paid to Her Majesty in right of the Province of Saskatchewan as a net royalty payment pursuant to a net royalty petroleum and natural gas lease that was in effect on March 31, 1977 to the extent that it can reasonably be regarded as a cost of acquiring the lease,

    • (b) subject to section 66.8, the taxpayer’s share of any expense referred to in paragraph (a) incurred by a partnership in a fiscal period thereof at the end of which the taxpayer was a member of the partnership, unless the taxpayer elects in respect of the share in prescribed form and manner on or before the day that is 6 months after the taxpayer’s taxation year in which that period ends, or

    • (c) any cost or expense referred to in paragraph (a) incurred by the taxpayer pursuant to an agreement in writing with a corporation, entered into before 1987, under which the taxpayer incurred the cost or expense solely as consideration for shares, other than prescribed shares, of the capital stock of the corporation issued to the taxpayer or any interest in or right to — or, for civil law, any right in or to — such shares,

    but for greater certainty, shall not include

    • (d) any consideration given by the taxpayer for any share or any interest therein or right thereto, except as provided by paragraph (c), or

    • (e) any expense described in paragraph (c) incurred by any other taxpayer to the extent that the expense was,

      • (i) by virtue of that paragraph, a Canadian oil and gas property expense of that other taxpayer,

      • (ii) by virtue of paragraph (i) of the definition Canadian exploration expense in subsection 66.1(6), a Canadian exploration expense of that other taxpayer, or

      • (iii) by virtue of paragraph (g) of the definition Canadian development expense in subsection 66.2(5), a Canadian development expense of that other taxpayer,

    but any amount of assistance that a taxpayer has received or is entitled to receive in respect of or related to the taxpayer’s Canadian oil and gas property expense shall not reduce the amount of any of the expenses described in any of paragraphs (a) to (c); (frais à l’égard de biens canadiens relatifs au pétrole et au gaz)

    cumulative Canadian oil and gas property expense

    cumulative Canadian oil and gas property expense of a taxpayer at any time in a taxation year means the amount determined by the formula

    (A + B + C + D + D.1) - (E + F + G + H + I + I.1 + J)

    where

    A
    is the total of all Canadian oil and gas property expenses made or incurred by the taxpayer before that time,
    B
    is the total of all amounts determined under subsection 66.4(1) in respect of the taxpayer for taxation years ending before that time,
    C
    is the total of all amounts referred to in the description of F or G that are established by the taxpayer to have become bad debts before that time,
    D
    is such part, if any, of the amount determined for I as has been repaid before that time by the taxpayer pursuant to a legal obligation to repay all or any part of that amount,
    D.1
    is the total of all specified amounts, determined under paragraph 66.7(12.1)(c) in respect of the taxpayer for taxation years ending before that time,
    E
    is the total of all amounts deducted in computing the taxpayer’s income for a taxation year ending before that time in respect of the taxpayer’s cumulative Canadian oil and gas property expense,
    F
    is the total of all amounts each of which is an amount in respect of property described in paragraph (a), (c) or (d) of the definition Canadian resource property in subsection 66(15) or any right to or interest in — or, for civil law, any right in or to — such a property, other than such a right or interest that the taxpayer has by reason of being a beneficiary under a trust or a member of a partnership, (in this description referred to as “the particular property”) disposed of by the taxpayer before that time equal to the amount, if any, by which
    • (a) the amount, if any, by which the proceeds of disposition in respect of the particular property that became receivable by the taxpayer before that time exceed any outlays or expenses made or incurred by the taxpayer before that time for the purpose of making the disposition and that were not otherwise deductible for the purposes of this Part

    exceeds the total of

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

      • (i) the total of all amounts that would be determined under paragraph 66.7(5)(a), immediately before the time (in this paragraph and paragraph (c) referred to as the “relevant time”) when such proceeds of disposition became receivable, in respect of the taxpayer and an original owner of the particular property (or of any other property acquired by the taxpayer with the particular property in circumstances in which subsection 66.7(5) applied and in respect of which the proceeds of disposition became receivable by the taxpayer at the relevant time) if

        • (A) amounts that became receivable at or after the relevant time were not taken into account,

        • (B) each designation made under subparagraph 66.7(4)(a)(iii) in respect of an amount that became receivable before the relevant time were made before the relevant time,

        • (C) paragraph 66.7(5)(a) were read without reference to “10% of”, and

        • (D) no reduction under subsection 80(8) at or after the relevant time were taken into account

      exceeds the total of

      • (ii) all amounts that would be determined under paragraph 66.7(5)(a) at the relevant time in respect of the taxpayer and an original owner of the particular property (or of that other property described in subparagraph (i)) if

        • (A) amounts that became receivable after the relevant time were not taken into account,

        • (B) each designation made under subparagraph 66.7(4)(a)(iii) in respect of an amount that became receivable at or before the relevant time were made before the relevant time,

        • (C) paragraph 66.7(5)(a) were read without reference to “10% of”, and

        • (D) no reduction under subsection 80(8) at or after the relevant time were taken into account, and

      • (iii) such portion of the amount determined under this paragraph as was otherwise applied to reduce the amount otherwise determined under this description, and

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

      • (i) the total of all amounts that would be determined under paragraph 66.7(4)(a), immediately before the relevant time, in respect of the taxpayer and an original owner of the particular property (or of any other property acquired by the taxpayer with the particular property in circumstances in which subsection 66.7(4) applied and in respect of which the proceeds of disposition became receivable by the taxpayer at the relevant time) if

        • (A) amounts that became receivable at or after the relevant time were not taken into account,

        • (B) each designation made under subparagraph 66.7(4)(a)(iii) in respect of an amount that became receivable before the relevant time were made before the relevant time,

        • (C) paragraph 66.7(4)(a) were read without reference to “30% of”, and

        • (D) no reduction under subsection 80(8) at or after the relevant time were taken into account

      exceeds the total of

      • (ii) all amounts that would be determined under paragraph 66.7(4)(a) at the relevant time in respect of the taxpayer and an original owner of the particular property (or of that other property described in subparagraph (i)) if

        • (A) amounts that became receivable after the relevant time were not taken into account,

        • (B) each designation made under subparagraph 66.7(4)(a)(iii) in respect of an amount that became receivable at or before the relevant time were made before the relevant time,

        • (C) paragraph 66.7(4)(a) were read without reference to “30% of”,

        • (D) amounts described in subparagraph 66.7(4)(a)(ii) that became receivable at the relevant time were not taken into account, and

        • (E) no reduction under subsection 80(8) at or after the relevant time were taken into account, and

      • (iii) such portion of the amount otherwise determined under this paragraph as was otherwise applied to reduce the amount otherwise determined under this description,

    G
    is the total of all amounts that became receivable by the taxpayer before that time that are to be included in the amount determined under this description by virtue of paragraph 66(12.5)(a),
    H
    is the total of all amounts each of which is an amount received before that time on account of any amount referred to in the description of C,
    I
    is the total amount of assistance that the taxpayer has received or is entitled to receive in respect of any Canadian oil and gas property expense incurred after 1980 or that can reasonably be related to any such expense after 1980,
    I.1
    is the total of all amounts by which the cumulative Canadian oil and gas property expense of the taxpayer is required because of subsection 80(8) to be reduced at or before that time, and
    J
    is the total of all amounts that are required to be deducted before that time under paragraph 66.7(12)(d) in computing the taxpayer’s cumulative Canadian oil and gas property expense; (frais cumulatifs à l’égard de biens canadiens relatifs au pétrole et au gaz)
    proceeds of disposition

    proceeds of disposition has the meaning assigned by section 54. (produit de disposition)

  • Marginal note:Application of ss. 66(15) and 66.1(6)

    (5.1) The definitions in subsections 66(15) and 66.1(6) apply to this section.

  • Marginal note:Share of partner

    (6) Except as provided in subsection 66.4(7), where a taxpayer is a member of a partnership, the taxpayer’s share of any amount that would be an amount referred to in the description of in the definition cumulative Canadian oil and gas property expense in subsection 66.4(5), in paragraph (a) of the description of F in that definition or in the description of G or I in that definition in respect of the partnership for a taxation year of the partnership if section 96 were read without reference to paragraph 96(1)(d) shall, for the purposes of this Act, be deemed to be an amount referred to in the description of D in the definition cumulative Canadian oil and gas property expense in subsection 66.4(5), in paragraph (a) of the description of F in that definition or in the description of G or I in that definition, whichever is applicable, in respect of the taxpayer for the taxation year of the taxpayer in which the partnership’s taxation year ends.

  • Marginal note:Exception

    (7) Where a non-resident person is a member of a partnership that is deemed under paragraph 115(4)(b) to have disposed of any Canadian resource property, the person’s share of any amount that would be an amount referred to in the description of D in the definition cumulative Canadian oil and gas property expense in subsection 66.4(5), in paragraph (a) of the description of F in that definition or in the description of G or I in that definition in respect of the partnership for a taxation year of the partnership if section 96 were read without reference to paragraph 96(1)(d) shall, for the purposes of this Act, be deemed to be an amount referred to in the description of D in the definition cumulative Canadian oil and gas property expense in subsection 66.4(5), in paragraph (a) of the description of F in that definition or in the description of G or I in that definition, whichever is applicable, in respect of the person for the taxation year of the person that is deemed under paragraph 115(4)(a) to have ended.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • R.S., 1985, c. 1 (5th Supp.), s. 66.4
  • 1994, c. 7, Sch. II, s. 41, Sch. VIII, s. 25, c. 21, s. 30
  • 1995, c. 21, s. 24
  • 2001, c. 17, s. 48
  • 2003, c. 28, s. 7
  • 2013, c. 34, ss. 115, 203
  • 2019, c. 29, s. 6
 
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