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

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Regulations are current to 2021-11-17 and last amended on 2021-08-12. Previous Versions

PART XIIResource and Processing Allowances (continued)

Frontier Exploration Allowances

  •  (1) A taxpayer may deduct in computing his income for a taxation year such amount as he may claim not exceeding the lesser of

    • (a) his income for the year, computed in accordance with Part I of the Act, if no deduction were allowed under this subsection; and

    • (b) his frontier exploration base as of the end of the year (before making any deduction under this subsection for the year).

  • (2) For the purposes of this section, frontier exploration base of a taxpayer as of a particular time means the amount by which the aggregate of

    • (a) the aggregate of all amounts, each of which is an amount in respect of a particular oil or gas well in Canada equal to 66 2/3 per cent of the amount by which

      • (i) expenses incurred after March, 1977 and before April, 1980 and before the particular time in respect of the well (other than expenses that may reasonably be regarded as having been incurred as consideration for services rendered to the taxpayer after March, 1980) if those expenses would be included in the Canadian exploration expense of the taxpayer within the meaning of paragraph 66.1(6)(a) of the Act (if that paragraph were read without reference to subparagraphs (iii) and (iii.1) thereof and without reference to the words “within six months after the end of the year, the drilling of the well is completed and” in subparagraph (ii) thereof, and if the reference in subparagraphs (iv) and (v) thereof to “any of subparagraphs (i) to (iii.1)” were read as a reference to “subparagraph (i) or (ii)”) other than

        • (A) a cost of borrowing capital, including any cost incurred prior to the commencement of carrying on a business, that was a Canadian exploration expense of the taxpayer,

        • (B) an expense renounced by the taxpayer under subsection 66(10.1) of the Act,

        • (C) an amount that, by virtue of subparagraph 66.1(6)(a)(iv) of the Act, was a Canadian exploration expense, if such amount was an expense referred to in clause (A) or (B) that was incurred by a partnership referred to in that subparagraph, or

        • (D) an amount that, by virtue of subparagraph 66.1(6)(a)(v) of the Act, was a Canadian exploration expense, if such amount was an expense referred to in clause (A) or (B) that the taxpayer incurred pursuant to an agreement referred to in that subparagraph,

      exceeds

      • (ii) the taxpayer’s threshold amount in respect of the well, minus the amount that would be determined under subparagraph (i) in respect of the taxpayer for the well if the reference therein to “after March, 1977 and before April, 1980” were read as “after June, 1976 and before April, 1977”, and

    • (a.1) where the taxpayer is a successor corporation, any amount required by paragraph (7)(a) to be added before the particular time in computing the taxpayer’s frontier exploration base,

    exceeds the aggregate of

    • (b) all amounts deducted by the taxpayer under subsection (1) in computing his income for taxation years ending before the particular time,

    • (c) 66 2/3 per cent of the aggregate of all amounts, each of which is an amount that became receivable by the taxpayer after March 28, 1979 and before the earlier of December 12, 1979 and the particular time, and in respect of which the consideration given by the taxpayer therefor was a property (other than a share, or a property that would have been a Canadian resource property if it had been acquired by the taxpayer at the time the consideration was given) or services the cost of which may reasonably be regarded as having been primarily an expenditure in respect of an oil or gas well for which an amount was added in computing the taxpayer’s frontier exploration base by virtue of paragraph (a) or in computing the frontier exploration base of a predecessor by virtue of paragraph (a) as it applied to the predecessor where the taxpayer is a successor corporation to the predecessor, as the case may be; and

    • (d) where the taxpayer is a predecessor, any amount required by paragraph (7)(b) to be deducted before the particular time in computing the taxpayer’s frontier exploration base.

  • (3) For the purposes of subparagraph (2)(a)(ii), a taxpayer’s threshold amount in respect of an oil or gas well means

    • (a) where the taxpayer and one or more other persons have filed an agreement with the Minister in prescribed form in respect of the well and

      • (i) the amount allocated to each such person in the agreement does not exceed the amount that would be determined, at the time the agreement is filed, under subparagraph (2)(a)(i) in respect of that person for the well, if the reference in that subparagraph to “March, 1977” were read as “June, 1976”, and

      • (ii) the aggregate of the amounts allocated by the agreement is $5 million,

      the amount allocated to the taxpayer in the agreement, but if no amount is allocated to the taxpayer in the agreement, nil;

    • (b) where such an agreement has been filed in respect of the well by one or more persons other than the taxpayer, nil; or

    • (c) where no such agreement has been filed in respect of the well, $5 million.

  • (4) Where as a result of mechanical or geological difficulties the drilling of a particular oil or gas well does not achieve its stated geological objectives under the drilling authority issued by the relevant government body and a further well, including a relief well, is drilled on the same geological formation and may reasonably be regarded as a continuation of or a substitution for the particular oil or gas well, the expenses in respect of the drilling of the further well shall, for the purposes of this section, be deemed to be expenses in respect of the drilling of the particular oil or gas well.

  • (5) For the purposes of this section,

    • (a) when a shareholder corporation is deemed to have incurred a Canadian exploration expense by virtue of an election made by a joint exploration corporation pursuant to subsection 66(10.1) of the Act, that expense shall be deemed to have been incurred by the shareholder corporation at the time when it was incurred by the joint exploration corporation; and

    • (b) when a member of a partnership is deemed to have incurred a Canadian exploration expense by virtue of subparagraph 66.1(6)(a)(iv) of the Act, that expense shall be deemed to have been incurred by the member at the time when it was incurred by the partnership.

  • (6) For the purposes of this section, oil or gas well means any well drilled for the purpose of producing petroleum or natural gas or of determining the existence, location, extent or quality of an accumulation of petroleum or natural gas, other than a mineral resource.

  • (7) Subject to subsections 1202(5) and (6), where a corporation (in this section referred to as the “successor corporation”) has at any time (in this subsection referred to as the “time of acquisition”) after April 19, 1983 and in a taxation year (in this subsection referred to as the “transaction year”) acquired a property from another person (in this subsection referred to as the “predecessor”), the following rules apply:

    • (a) for the purpose of computing the frontier exploration base of the successor corporation as of any time after the time of acquisition, there shall be added an amount equal to the amount required by paragraph (b) to be deducted in computing the frontier exploration base of the predecessor; and

    • (b) for the purpose of computing the frontier exploration base of the predecessor as of any time after the transaction year of the predecessor, there shall be deducted the amount, if any, by which

      • (i) the frontier exploration base of the predecessor immediately after the time of acquisition (assuming for this purpose that, in the case of an acquisition as a result of an amalgamation described in section 87 of the Act, the predecessor existed after the time of acquisition and no property was acquired or disposed of in the course of the amalgamation)

      exceeds

      • (ii) the amount, if any, deducted under subsection (1) in computing the income of the predecessor for the transaction year of the predecessor.

  • (8) [Repealed, SOR/91-79, s. 8]

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • SOR/78-502, s. 7
  • SOR/79-245, s. 6
  • SOR/80-418, s. 5
  • SOR/80-936, s. 1
  • SOR/81-974, s. 8
  • SOR/85-174, s. 8
  • SOR/85-696, ss. 2, 5
  • SOR/90-113, s. 6
  • SOR/90-733, s. 5
  • SOR/91-79, s. 8
  • SOR/94-686, ss. 58(F), 78(F), 79(F)

Additional Allowances in Respect of Certain Oil or Gas Wells

  •  (1) Subject to subsections (3) and (4) where a taxpayer has income for a taxation year from an oil or gas well that is outside Canada, or where an individual has income for a taxation year from an oil or gas well in Canada, in computing his income for the year he may deduct the lesser of

    • (a) the aggregate of drilling costs incurred by him in that year and previous taxation years in respect of the well (not including the cost of land, leases or other rights and not including indirect expenses such as general exploration, geological and geophysical expenses) minus the aggregate of all amounts deductible in respect thereof in computing his income for previous years; and

    • (b) that part of his income for the year that may reasonably be regarded as income from the well.

  • (2) Where a taxpayer has more than one oil or gas well to which subsection (1) applies, the allowance in respect of the drilling costs of each well shall be computed separately.

  • (3) Where an individual has income for a taxation year from an oil or gas well in Canada, no deduction may be made under this section in computing such income in respect of drilling costs of that well incurred after April 10, 1962.

  • (4) Where a taxpayer has income for a taxation year from an oil or gas well that is outside Canada, no deduction may be made under this section in computing such income in respect of drilling costs of that well incurred after 1971.

Additional Allowances in Respect of Certain Mines

  •  (1) Subject to subsection (3), where a taxpayer operates in Canada a mine for the production of materials from a resource he may deduct, in computing his income for a taxation year, such amount as he may claim not exceeding 25 per cent of the amount computed under subsection (2).

  • (2) The amount referred to in subsection (1) is the aggregate of all expenditures made or incurred by the taxpayer before 1972 that are reasonably attributable to the prospecting and exploration for and the development of the mine prior to the coming into production of the mine in reasonable commercial quantities, except to the extent that the expenditures were

    • (a) expenditures in respect of which a deduction from, or in computing, a taxpayer’s income tax or excess profits tax was provided by section 8 of the Income War Tax Act;

    • (b) expenditures in respect of which an amount was deducted in computing a taxpayer’s income under section 16 of chapter 63, S.C., 1947 or section 16 of chapter 53, S.C., 1947-48 or, if the expenditure was incurred prior to 1953, under section 53 of chapter 25, S.C., 1949 (Second Session);

    • (c) expenditures incurred after 1952 in respect of which a deduction was or is provided by section 53 of chapter 25, S.C., 1949 (Second Session), section 83A of the Act as it read in its application to the 1971 taxation year or section 29 of the Income Tax Application Rules,

    • (d) expenditures deducted in computing the income of the taxpayer in the year they were incurred;

    • (e) the cost to the taxpayer of property in respect of which an allowance is provided under paragraph 20(1)(a) of the Act; or

    • (f) the cost to the taxpayer of a leasehold interest.

  • (3) The amount deductible under subsection (1) shall not exceed the amount computed under subsection (2) minus the aggregate of

    • (a) amounts deducted under subsection (1) in computing the income of the taxpayer for previous taxation years; and

    • (b) similar amounts deducted in computing the income of the taxpayer for the purposes of the Income War Tax Act and The 1948 Income Tax Act (as defined in paragraph 12(d) of the Income Tax Application Rules).

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • SOR/94-686, s. 48

Resource Allowance

 [Repealed, SOR/2007-19, s. 5]

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  •  SOR/81-974, s. 9
  • SOR/85-174, s. 9
  • SOR/90-113, s. 7
  • SOR/91-79, s. 9
  • SOR/93-120, s. 2
  • SOR/94-686, ss. 58(F), 78(F)
  • SOR/96-451, s. 5
  • SOR/99-179, s. 8
  • SOR/2007-19, s. 5

 [Repealed, SOR/2007-19, s. 6]

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • SOR/99-179, s. 9
  • SOR/2007-19, s. 6

Prescribed Amounts

 [Repealed, SOR/2007-19, s. 6]

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • SOR/78-502, s. 8
  • SOR/80-926, s. 2
  • SOR/81-974, s. 10
  • SOR/85-174, s. 10
  • 1991, c. 10, s. 19
  • SOR/2007-19, s. 6

Supplementary Depletion Allowances

  •  (1) In computing a taxpayer’s income for a taxation year there may be deducted

    • (a) where the taxpayer is a corporation, such amount as it may claim not exceeding the lesser of

      • (i) the aggregate of

        • (A) 50 per cent of its income for the year, computed in accordance with Part I of the Act without reference to paragraphs 59(3.3)(c) and (d) thereof, if no deduction were allowed under this subsection or subsection 1207(1), and

        • (B) the amount, if any, included in its income for the year by virtue of paragraphs 59(3.3)(c) and (d) of the Act, and

      • (ii) its supplementary depletion base as of the end of the year (before making any deduction under this subsection for the year); and

    • (b) where the taxpayer is not a corporation, such amount as he may claim not exceeding the lesser of

      • (i) the aggregate of

        • (A) 25 per cent of the amount, if any, by which his resource profits for the year exceed four times the amount, if any, deducted by virtue of subparagraph 1201(a)(i) in computing his income for the year, and

        • (B) the amount, if any, included in his income for the year by virtue of paragraphs 59(3.3)(c) and (d) of the Act, and

      • (ii) his supplementary depletion base as of the end of the year (before making any deduction under this subsection for the year).

  • (2) For the purpose of computing the supplementary depletion base of a corporation, where, after the corporation last ceased to carry on active business, control of the corporation is considered, for the purposes of subsection 66(11) of the Act, to have been acquired by a person or persons who did not control the corporation at the time when it so ceased to carry on active business, the amount by which the supplementary depletion base of the corporation at the time it last ceased to carry on active business exceeds the aggregate of amounts otherwise deducted under subsection (1) 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 subsection (1) by the corporation in computing its income for taxation years ending before control was so acquired.

  • (3) For the purposes of this section, supplementary depletion base of a taxpayer as of a particular time means the amount by which the aggregate of

    • (a) 50 per cent of the aggregate of all expenditures each of which was incurred by him before the particular time and each of which was the capital cost to him of property that is enhanced recovery equipment,

    • (b) 33 1/3 per cent of the aggregate of all expenditures each of which was incurred by him before the particular time and each of which was the capital cost to him of property (other than property that had, before it was acquired by him, been used for any purpose whatever by any person with whom he was not dealing at arm’s length) that is bituminous sands equipment acquired by him before 1981, and

    • (c) where the taxpayer is a successor corporation, any amount required by paragraph (4)(a) to be added before the particular time in computing the taxpayer’s supplementary depletion base,

    exceeds the aggregate of

    • (d) all amounts deducted by the taxpayer under subsection (1) in computing his income for taxation years ending before the particular time,

    • (e) 50 per cent of the aggregate of all amounts, each of which is a cost of borrowing capital, including any cost incurred prior to the commencement of carrying on a business, included in the capital cost to him of depreciable property described in paragraph (a);

    • (f) 33 1/3 per cent of the aggregate of all amounts, each of which is a cost of borrowing capital, including any cost incurred prior to the commencement of carrying on a business, included in the capital cost to him of depreciable property described in paragraph (b);

    • (g) 50 per cent of the aggregate of all amounts, each of which is an amount in respect of a disposition of property (other than a disposition of property, that had been used by the taxpayer, to any person with whom the taxpayer was not dealing at arm’s length) of the taxpayer before the earlier of December 12, 1979 and the particular time, the capital cost of which was added in computing the taxpayer’s supplementary depletion base by virtue of paragraph (a) or in computing the supplementary depletion base of a predecessor by virtue of paragraph (a) as it applied to the predecessor where the taxpayer is a successor corporation to the predecessor, as the case may be, and each of which is the amount that is equal to the lesser of

      • (i) the proceeds of disposition of the property, and

      • (ii) the capital cost of the property to the taxpayer or the predecessor, as the case may be, computed as if no amount had been included therein that is a cost of borrowing capital, including a cost incurred prior to the commencement of carrying on a business;

    • (h) 33 1/3 per cent of the aggregate of all amounts, each of which is an amount in respect of a disposition of property (other than a disposition of property, that had been used by the taxpayer, to any person with whom the taxpayer was not dealing at arm’s length) of the taxpayer before the earlier of December 12, 1979 and the particular time, the capital cost of which was added in computing the taxpayer’s supplementary depletion base by virtue of paragraph (b) or in computing the supplementary depletion base of a predecessor by virtue of paragraph (b) as it applied to the predecessor where the taxpayer is a successor corporation to the predecessor, as the case may be, and each of which is the amount that is equal to the lesser of

      • (i) the proceeds of disposition of the property, and

      • (ii) the capital cost of the property to the taxpayer or the predecessor, as the case may be, computed as if no amount had been included therein that is a cost of borrowing capital, including any cost incurred prior to the commencement of carrying on a business; and

    • (i) where the taxpayer is a predecessor, any amount required by paragraph (4)(b) to be deducted before the particular time in computing the taxpayer’s supplementary depletion base.

  • (4) Subject to subsections 1202(5) and (6), where a corporation (in this section referred to as the “successor corporation”) has at any time (in this subsection referred to as the “time of acquisition”) after April 19, 1983 and in a taxation year (in this subsection referred to as the “transaction year”) acquired a property from another person (in this subsection referred to as the “predecessor”), the following rules apply:

    • (a) for the purpose of computing the supplementary depletion base of the successor corporation as of any time after the time of acquisition, there shall be added an amount equal to the amount required by paragraph (b) to be deducted in computing the supplementary depletion base of the predecessor; and

    • (b) for the purpose of computing the supplementary depletion base of the predecessor as of any time after the transaction year of the predecessor, there shall be deducted the amount, if any, by which

      • (i) the supplementary depletion base of the predecessor immediately after the time of acquisition (assuming for this purpose that, in the case of an acquisition as a result of an amalgamation described in section 87 of the Act, the predecessor existed after the time of acquisition and no property was acquired or disposed of in the course of the amalgamation)

      exceeds

      • (ii) the amount, if any, deducted under subsection (1) in computing the income of the predecessor for the transaction year of the predecessor.

  • (5) [Repealed, SOR/91-79, s. 10]

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • SOR/79-245, s. 7
  • SOR/80-418, s. 6
  • SOR/81-974, s. 11
  • SOR/85-174, s. 11
  • SOR/85-696, ss. 2, 6
  • SOR/90-113, s. 8
  • SOR/90-733, s. 6
  • SOR/91-79, s. 10
  • SOR/94-686, s. 79(F)
 
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