Petroleum and Gas Revenue Tax Act (R.S.C., 1985, c. P-12)

Marginal note:Application restricted

2.1 This Act does not apply in respect of income or loss of a taxpayer from a source that is

• (a) the production after September 1986 of petroleum or gas;

• (b) the processing in Canada after September 1986 of petroleum to any stage that is not beyond the stage of crude oil or its equivalent; or

• (c) any amount received or receivable by the taxpayer as, on account of or in lieu of payment of, or in satisfaction of, a production royalty or resource royalty computed by reference to the amount or value of production after September 1986 of petroleum or gas.

Her Majesty

Marginal note:Binding on Her Majesty

3 This Act is binding on Her Majesty in right of Canada or any province.

PART IRevenue Tax

Tax and Computation

Marginal note:Tax payable

4 A tax shall be paid as required by this Part on the production revenue of every person for each taxation year.

Marginal note:Production revenue defined

• 5 (1) Petroleum and gas production revenue of a taxpayer for a taxation year is the amount, if any, by which the aggregate of all amounts each of which is the income of the taxpayer for the year from a source that is

  • (a) the production before October 1986 of petroleum or gas,

  • (b) the processing in Canada before October 1986 of petroleum to any stage that is not beyond the stage of crude oil or its equivalent, or

  • (c) an amount received or receivable by the taxpayer as a production royalty or resource royalty computed by reference to the amount or value of production after 1985 and before October 1986,

  exceeds

  • (d) the aggregate of all amounts each of which is the loss of the taxpayer for the year from a source referred to in paragraph (a), (b) or (c),

  computed in accordance with the Income Tax Act, if that Act were read without reference to paragraph 81(1)(r) thereof, on the assumption that the taxpayer had during the year no income or loss except from those sources and was allowed no deduction in computing his income for the year in respect of

  • (e) any amount, other than a prescribed amount, deductible in computing the taxpayer’s income for the year by virtue of section 20 (other than paragraph (1)(q), (s), (w), (x), (y) or (ii) thereof), 37 or 37.1, subsection 104(6) or (12) or Subdivision e of Division B of Part I of the Income Tax Act or the Income Tax Application Rules, 1971,

  • (f) the amount of any consideration paid or payable, other than a resource royalty or a production royalty, that may reasonably be considered to be for the use of, the right to use, or the preservation of any rights in respect of, property,

  • (g) any payout in respect of a production royalty or resource royalty received by the taxpayer that was computed by reference to the amount or value of production before 1986,

  • (h) any amount paid before 1981 in respect of the amount or value of production of petroleum or gas after 1980,

  • (i) any resource royalty or production royalty in respect of the year that was computed by reference to the amount or value of production before 1986 and was not paid on or before the day that is sixty days after the end of the year,

  • (i.1) any resource royalty in respect of the year, computed by reference to the amount or value of production after 1985, that is

    • (i) payable by the taxpayer to a non-resident person who would be liable to taxation thereon under subsection 26(1) if he had received the resource royalty, and

    • (ii) not paid by the taxpayer on or before the later of the day that is 60 days after the end of the year and February 28, 1987,

  • (j) any amount, other than a prescribed amount, paid or payable as a royalty, tax, lease rental or bonus referred to in paragraph 7(e),

  • (k) any deduction except to the extent that it may reasonably be considered to be applicable to those sources, and

  • (l) any resource royalty or production royalty computed by reference to the amount or value of production after September 1986.

• Marginal note:Rules for calculating income

  (2) For the purposes of computing the income of a taxpayer for a taxation year from any source referred to in subsection (1),

  • (a) where petroleum is processed to any stage that is beyond the stage of crude oil or its equivalent, the petroleum shall be deemed to be disposed of at the time that it reaches the crude oil stage or its equivalent for proceeds of disposition equal to its fair market value at that time;

  • (b) where petroleum or gas produced or processed by a taxpayer is used or consumed at any time by that taxpayer for any purpose, other than a prescribed purpose, it shall be deemed to be disposed of by him at that time for proceeds of disposition equal to its fair market value at that time;

  • (c) where an amount has been included in computing a taxpayer’s income for the year or a previous taxation year in respect of petroleum or gas not delivered before the end of the year,

    • (i) there shall be deducted in computing the income of the taxpayer for the year a reasonable amount as a reserve in respect of petroleum or gas that it is reasonably anticipated will have to be delivered after the end of the year,

    • (ii) there shall be included in computing the income of a taxpayer for the year any amount so deducted in computing his income for the immediately preceding taxation year, except to the extent that the amount may reasonably be attributed to petroleum or gas produced after September 1986 and delivered before the end of the year, and

    • (iii) there shall be deducted in computing the income of the taxpayer for the year any repayment in the year by the taxpayer of an amount that has been included in computing his income for the year or a previous taxation year for the purposes of this Act in respect of petroleum or gas not delivered before the end of the year;

  • (c.1) where, in computing the income of a taxpayer for a taxation year, amounts are included in respect of petroleum or gas not delivered before the end of the year and the taxpayer has paid a reasonable amount in a particular taxation year to another taxpayer for undertaking to deliver the petroleum or gas, the taxpayers may jointly elect to be bound by the following subparagraphs by filing with the Minister a notice in writing on or before the earliest day on or before which either of the taxpayers is required under section 11 to file a return of production revenue for the taxation year in which the payment to which the election relates is made:

    • (i) the payment may be deducted in computing the income for the particular year of the taxpayer who made the payment and no amount is deductible in respect of the petroleum or gas under subparagraph (c)(i) in computing the income of that taxpayer for that or any subsequent taxation year, and

    • (ii) the taxpayer who received the payment shall be deemed to have received the payment in the course of a business on account of petroleum or gas not delivered before the end of the taxation year in which the payment was received and the payment shall be included in computing the income of that taxpayer for that year;

  • (d) there shall be included any amount required to be included in computing the income of the taxpayer by virtue of paragraph 12(1)(o) of the Income Tax Act that may reasonably be regarded as being in relation to the production of petroleum or gas before October 1986;

  • (e) there may be deducted such amount as an allowance, if any, in respect of the income of the taxpayer for the year from a source referred to in paragraph (1)(a), (b) or (c) as is allowed to the taxpayer by regulation; and

  • (f) there shall be deducted

    • (i) in computing the income of the taxpayer for the 1984 taxation year, any amount that would be deductible in the year by virtue of paragraph 20(1)(mm) of the Income Tax Act if the reference in that paragraph to “injected before that time” were read as “injected after 1980 and before that time”, and

    • (ii) in computing the income of the taxpayer for a taxation year ending after 1984, any amount that would be deductible in the year by virtue of paragraph 20(1)(mm) of the Income Tax Act if the reference in that paragraph to “injected before that time” were read as “injected in the year and before October 1986”.

• Marginal note:Deduction for synthetic production

  (2.1) A taxpayer may deduct in computing his production revenue for a taxation year an amount equal to that portion of the taxpayer’s synthetic production revenue for the year that may reasonably be attributed to production of petroleum after April 1986 and before October 1986.

• Marginal note:Deduction of royalties

  (3) Where a resource royalty or production royalty is not deductible in computing the production revenue of a taxpayer for a taxation year by virtue only of paragraph (1)(i), the resource royalty or production royalty may be deducted by the taxpayer in computing his production revenue for the subsequent taxation year in which the royalty is paid.

• Marginal note:Idem

  (3.1) Where a resource royalty is not deductible in computing the production revenue of a taxpayer for a taxation year by virtue only of paragraph (1)(i.1), the resource royalty may be deducted by the taxpayer in computing the taxpayer’s production revenue for the subsequent taxation year in which the royalty is paid.

• Marginal note:Individual deduction

  (3.2) An individual, other than a trust, may deduct in computing his production revenue for the 1986 taxation year an amount not exceeding $1,500,000.

• Marginal note:Royalties re production before 1982

  (4) Notwithstanding subsections (1) and (3), not more than one-half of any resource royalty computed by reference to the amount or value of production before 1982 may be deducted in computing the production revenue of a taxpayer that may reasonably be attributed to a period after 1981.

• Marginal note:Corporation as beneficiary under a trust

  (5) Where a corporation is a beneficiary under a trust, an amount that may, having regard to all the circumstances including the terms and conditions of the trust arrangement, reasonably be considered to be the corporation’s share of an amount that would be the production revenue of the trust for a taxation year that may reasonably be attributed to the period in the year commencing after the later of May 31, 1982 and the date the corporation first became a beneficiary under the trust, if

  • (a) subsection (1) were read without reference to paragraph (c) thereof,

  • (b) the reference in paragraph (1)(d) to “paragraph (a), (b) or (c)” were read as a reference to “paragraph (a) or (b)”, and

  • (c) the reference to “a production royalty” in paragraph (1)(f) were read as a reference to “production royalty in respect of production of petroleum or gas of the trust”,

  shall, if so designated by the trust in respect of the corporation in the trust’s return of production revenue for the year and not designated by the trust in respect of any other beneficiary thereunder, be deemed to be production revenue of the corporation for the taxation year of the corporation in which the taxation year of the trust ended.

• Marginal note:Taxpayer as beneficiary under trust

  (5.1) Where a taxpayer is a beneficiary under a trust, an amount, other than an amount deemed to be production revenue of the taxpayer pursuant to subsection (5), that may, having regard to all the circumstances, including the terms and conditions of the trust arrangement, reasonably be considered to be the taxpayer’s share of such portion of the production revenue of the trust for a taxation year as may reasonably be attributed to the period in the year commencing on the latest of

  • (a) the first day of the year,

  • (b) January 1, 1986, and

  • (c) the date on which the taxpayer first became a beneficiary under the trust,

  shall, if so designated by the trust in respect of the taxpayer in the trust’s return of production revenue for the year and not designated under this section by the trust in respect of any other beneficiary thereunder, be deemed to be production revenue of the taxpayer for the taxation year of the taxpayer in which the taxation year of the trust ended.

• Marginal note:Non-application of subsection (5.1)

  (5.2) Subsection (5.1) does not apply in respect of a non-resident person not carrying on a business described in subparagraph 66(15)(h)(i) of the Income Tax Act through one or more fixed places of business in Canada.

• Marginal note:Presumption of payment of tax

  (6) Where an amount, referred to in this subsection as the “designated amount”, included in the production revenue of a trust for a taxation year is designated by the trust under subsection (5) or (5.1) in respect of a taxpayer, the amount of the tax paid by the trust on its production revenue for the year that may reasonably be considered to relate to the designated amount shall be deemed to have been paid by the taxpayer on account of the tax payable under this Part by the taxpayer on the production revenue of the taxpayer for the taxpayer’s taxation year in which the taxation year of the trust ended.

• (7) [Repealed, R.S., 1985, c. 2 (2nd Supp.), s. 3]

• Marginal note:Income deductions and inclusions

  (8) For the purposes of computing the income of a taxpayer for a taxation year from a source referred to in paragraph (1)(a) or (b),

  • (a) subject to subsection (9), there shall be deducted in respect of a particular prescribed project, the amount equal to the lesser of

    • (i) the production revenue of the taxpayer for the year that may reasonably be attributable to the production after December 31, 1982 of petroleum or gas or the processing after December 31, 1982 of petroleum to any stage that is not beyond the stage of crude oil or its equivalent from a prescribed reservoir in which the project is located, computed on the assumption that for the year the taxpayer was allowed no deductions under paragraph (2)(e) or this paragraph, and

    • (ii) the cumulative enhanced recovery capital expense of the taxpayer at the end of the year in respect of the project; and

  • (b) there shall be included, in respect of a particular prescribed project, the amount, if any, by which

    • (i) the aggregate of all amounts referred to in paragraphs 6(2)(e) to (k) that would be taken into account in computing the taxpayer’s cumulative enhanced recovery capital expense at the end of the year in respect of the project

    exceeds

    • (ii) the aggregate of all amounts referred to in paragraphs 6(2)(a) to (d) that would be taken into account in computing the taxpayer’s cumulative enhanced recovery capital expense at the end of the year in respect of the project.

• Marginal note:Election respecting deductions

  (9) Where all taxpayers who

  • (a) have made or incurred prescribed exploration and development expenses,

  • (b) have acquired prescribed enhanced recovery equipment, or

  • (c) are obligated to make or incur prescribed exploration and development expenses or to acquire prescribed enhanced recovery equipment,

  in respect of a prescribed project, jointly make a valid election not to make any deductions under paragraph (8)(a) in respect of the project, deductions shall not be made under that paragraph in respect of the project in computing the income of any taxpayer for any taxation year.

• Marginal note:Filing of election

  (10) An election referred to in subsection (9) in respect of a prescribed project is not valid unless it is made in prescribed form and is filed with the Minister on or before the earliest day on or before which any taxpayer who is required to join in the election is required under section 11 to file a return of production revenue for the taxation year in which the taxpayer first

  • (a) makes or incurs a prescribed exploration and development expense, or

  • (b) acquires prescribed enhanced recovery equipment,

  in respect of the project.

• Marginal note:Election binding on all interests

  (11) Where an election in respect of a prescribed project is filed in accordance with subsection (10), any taxpayer who at any time thereafter

  • (a) makes or incurs prescribed exploration and development expenses, or

  • (b) acquires prescribed enhanced recovery equipment,

  in respect of the project shall be deemed to have joined in the election and is bound by it.

• Marginal note:Late-filed request

  (12) Where, in the opinion of the Minister, the circumstances of a case are such that it would be just and equitable to permit an election to be filed under subsection (10) after the day on or before which it is required by that subsection to be filed, the Minister may permit the election to be filed after that day and, where the election is filed pursuant to the permission, the election shall be deemed to have been filed on the day on or before which it is required to be filed.