Petroleum and Gas Revenue Tax Regulations (SOR/82-503)

5.3 (1) For the purposes of sections 82 and 82.1 of the Act, as those sections read before December 12, 1988, each of the following expenses is a prescribed exploration and development expense of a taxpayer:

• (a) a Canadian exploration expense of the taxpayer in respect of a project that was a prescribed project at the time the expense was made or incurred that, subject to subsection (2),

  • (i) would be referred to in subparagraph 66.1(6)(a)(ii) or (ii.1) of the Income Tax Act if each of those subparagraphs were read without reference to clause (B) thereof, or

  • (ii) would be referred to in subparagraph 66.1(6)(a)(iv) or (v) of the Income Tax Act if the references in those subparagraphs to “referred to in any of subparagraphs (i) to (iii.1)” were read as “that would be referred to in subparagraph (ii) or (ii.1) if each of those subparagraphs were read without reference to clause (B) thereof”; and

• (b) a Canadian development expense of the taxpayer in respect of a project that was a prescribed project at the time the expense was made or incurred that, subject to subsection (2),

  • (i) is referred to in subparagraph 66.2(5)(a)(i) or (i.1) of the Income Tax Act, or

  • (ii) would be referred to in subparagraph 66.2(5)(a)(iv) or (v) of the Income Tax Act if the references in those subparagraphs to “any of subparagraphs (i) to (iii)” were read as “subparagraph (i) or (i.1)”.

(2) An expense referred to in paragraph (1)(a) or (b) is a prescribed exploration and development expense only to the extent that it is not

• (a) an amount that is in respect of financing, including any costs incurred prior to the commencement of carrying on a business;

• (b) an expense renounced at any time by the taxpayer under subsection 66(10.1) or (10.2) of the Income Tax Act;

• (c) an expense renounced by a joint exploration corporation under subsection 66(10.1) or (10.2) of the Income Tax Act in favour of the taxpayer, to the extent that the expense is incurred by the joint exploration corporation before 1983;

• (d) an amount that was a Canadian exploration and development overhead expense of the taxpayer; or

• (e) an expense that is deemed under subsection 3(3) to be a Canadian exploration and development overhead expense of the taxpayer incurred by the taxpayer.