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

Short Title

1 These Regulations may be cited as the Petroleum and Gas Revenue Tax Regulations.

Interpretation

2 In these Regulations,

Act

Act means the Petroleum and Gas Revenue Tax Act; (Loi)

Canadian development expense

Canadian development expense has the meaning assigned to that expression by paragraph 66.2(5)(a) of the Income Tax Act; (frais d’aménagement au Canada)

Canadian exploration and development overhead expense

Canadian exploration and development overhead expense has the meaning assigned to that expression by subsection 1206(1) of the Income Tax Regulations; (frais généraux d’exploration et d’aménagement au Canada)

Canadian exploration expense

Canadian exploration expense has the meaning assigned to that expression by paragraph 66.1(6)(a) of the Income Tax Act; (frais d’exploration au Canada)

joint exploration corporation

joint exploration corporation has the meaning assigned to that expression by paragraph 66(15)(g) of the Income Tax Act; (corporation d’exploration en commun)

Minister

Minister means the Minister of National Revenue; (ministre)

primary recovery

primary recovery has the meaning assigned that expression by subsection 1206(1) of the Income Tax Regulations; (récupération primaire)

secondary recovery method

secondary recovery method has the meaning assigned to that expression by subsection 1206(1) of the Income Tax Regulations; (méthode de récupération secondaire)

shareholder corporation

shareholder corporation has the meaning assigned to that expression by paragraph 66(15)(i) of the Income Tax Act; (corporation actionnaire)

specified royalty provision

specified royalty provision means

• (a) the Experimental Project Petroleum Royalty Regulations of Alberta (Alta. Reg. 36/79),

• (b) the Experimental Oil Sands Royalty Regulations of Alberta (Alta. Reg. 287/77),

• (c) section 4.2 of the Petroleum Royalty Regulations of Alberta (Alta. Reg. 93/74),

• (d) section 58A of the Petroleum and Natural Gas Regulations, 1969 of Saskatchewan (Sask. Reg. 8/69),

• (e) section 204 of the Freehold Oil And Gas Production Tax Regulations, 1983 of Saskatchewan (Sask. Reg. 11/83),

• (f) item 9 of section 2 of the Petroleum and Natural Gas Royalty Regulations of British Columbia (B.C. Reg. 549/78),

• (g) the Freehold Mineral Taxation Act of Alberta,

• (h) the Freehold Mineral Rights Tax Act of Alberta,

• (i) Order in Council 427/84 of the Lieutenant Governor in Council of Alberta, pursuant to clause 9(a) of the Mines and Minerals Act of Alberta,

• (j) Order in Council 870/84 of the Lieutenant Governor in Council of Alberta, pursuant to section 9 of the Mines and Minerals Act of Alberta, or

• (k) Order in Council 966/84 of the Lieutenant Governor in Council of Alberta, pursuant to section 9 of the Mines and Minerals Act of Alberta. (régime désigné de redevances)

Prescribed Amounts

• 3 (1) For the purposes of paragraph 5(1)(e) of the Act, a prescribed amount in respect of a taxpayer is the amount of his Canadian exploration and development overhead expense (as defined in Part XII of the Income Tax Regulations) for a taxation year, other than an amount included therein

  • (a) that is an amount described in paragraph 5(1)(f) of the Act;

  • (b) that is in respect of financing;

  • (c) in respect of which a person has received, is entitled to receive or, at any time, becomes entitled to receive

    • (i) an incentive under the Petroleum Incentives Program Act, or

    • (ii) a payment from the Alberta Petroleum Incentives Program Fund under the Petroleum Incentives Program Act of the Province of Alberta; or

  • (d) that is in respect of an expense incurred after September 30, 1986.

• (2) For the purposes of subsection (1), where an expense incurred after 1980 that was a Canadian exploration expense (other than an amount included therein that is in respect of financing) or a Canadian development expense (other than an amount included therein that is in respect of financing or an amount referred to in subparagraph 66.2(5)(a)(iii) of the Income Tax Act) has been renounced by a joint exploration corporation in favour of a taxpayer and was deemed under subsection 66(10.1) or (10.2) of the Income Tax Act to be an expense of the taxpayer, the expense shall be deemed to have been such an expense incurred by the taxpayer at the time it was deemed to have been incurred by the taxpayer for the purposes of subsection 66(10.1) or (10.2) of the Income Tax Act.

• (3) An expense that is a Canadian exploration and development overhead expense of a joint exploration corporation referred to in subsection (2), or that would be such an expense if the references to “connected with the taxpayer” in paragraph (d) of the definition Canadian exploration and development overhead expense in subsection 1206(1) of the Income Tax Regulations were read as “connected with the shareholder corporation in favour of which the expense was renounced for the purposes of subsection 66(10.1) or (10.2) of the Act”, that may reasonably be considered to be included in a Canadian exploration expense or Canadian development expense that is deemed under subsection (2) to be a Canadian exploration expense or Canadian development expense of the shareholder corporation shall be deemed

  • (a) to be a Canadian exploration and development overhead expense of the shareholder corporation incurred by the shareholder corporation at the time the expense was deemed by subsection (2) to have been incurred by the shareholder corporation; and

  • (b) at and after that time not to be a Canadian exploration and development overhead expense of the joint exploration corporation.

3.1 For the purposes of paragraph (a) of the definition Crown royalty in subsection 2(1) of the Act, the amount of each royalty, tax, lease rental and bonus that

• (a) is described in paragraph 7(1)(e) of the Act, or that would be so described if subparagraph (iii) thereof were read without reference to the words “other than a prescribed person”, and

• (b) was paid to, became payable to, or became receivable by

  • (i) Her Majesty in right of Canada for the use and benefit of a band or bands as defined in the Indian Act, or

  • (ii) Petro-Canada Limited

is hereby prescribed to be an amount paid, payable or receivable, as the case may be.

4 For the purposes of paragraph 82(1)(i) of the Act, as that paragraph read before December 12, 1988, an amount paid or payable to Her Majesty in right of Canada for the use and benefit of a band or bands, as defined in subsection 2(1) of the Indian Act, is a prescribed amount to the extent that it relates to the production of petroleum or gas before October 1, 1986.

4.1 to 4.5 [Revoked, SOR/89-553, s. 3]

Prescribed Purposes

5 For the purposes of paragraph 5(2)(b) of the Act, the following purposes are hereby prescribed:

• (a) the earning of income by a taxpayer from a source described in paragraph 5(1)(a) or (b) of the Act; and

• (b) the use or consumption by a taxpayer, for any purpose other than a purpose described in paragraph (a), of gas produced in a taxation year by him from wells that are not part of a business of producing, distributing or processing gas carried on by him if the total production from those wells does not exceed 1,000 gigajoules in the year.

Resource Allowances

5.1 For the purposes of paragraph 5(2)(e) of the Act, there may be deducted in computing the income of a taxpayer for a taxation year

• (a) 25 per cent of the amount of his production revenue for the year that may reasonably be attributed to a period in the year that is after December 31, 1981,

• (b) 20.45 per cent of the amount of his production revenue for the year that may reasonably be attributed to a period in the year that is after December 31, 1982 and before June 1, 1983 and that is derived from the production of petroleum by the taxpayer from a mine in a bituminous sands deposit, and

• (c) 25 per cent of the amount of the taxpayer’s production revenue for the year that may reasonably be attributed to a period in the year that is after May 31, 1983, and that is derived from the production of petroleum by the taxpayer from a mine in a bituminous sands deposit,

which production revenue is computed in accordance with the Act on the assumption that, for the year,

• (d) the taxpayer was not allowed any deduction under paragraph 82(2)(e) or subsection 82(3.2) of the Act, as those provisions read before December 12, 1988;

• (e) the taxpayer has not deducted any amount with respect to the payment of a resource royalty;

• (f) the taxpayer has not included any amount in the taxpayer’s production revenue by virtue of subsection 82(5) of the Act, as that subsection read before December 12, 1988; and

• (g) paragraph 82(1)(b.1) of the Act, as that paragraph read before December 12, 1988, is read without reference to “or resource royalty”.

Prescribed Project and Prescribed Reservoir

• 5.2 (1) For the purposes of sections 79, 82, 82.1 and 83 of the Act, as those sections read before December 12, 1988, this section and sections 5.3 to 5.5, a prescribed project in a taxation year is a project that uses a method (including a method that uses carbon dioxide miscible, hydrocarbon miscible, thermal or chemical processes, but not including a secondary recovery method) that is designed to recover petroleum from a reservoir that is incremental to the petroleum that would be recovered therefrom by primary recovery and a secondary recovery method if

  • (a) a specified royalty provision applies in the year or in the immediately following taxation year in respect of the production, if any, or any portion thereof from the project or in respect of the ownership of property to which that production relates;

  • (b) the project is located on a reserve within the meaning of the Indian Act; or

  • (c) the project is located in the Province of Ontario.

• (2) For the purposes of subsection 5(8) of the Act and this section, a prescribed reservoir in a taxation year is a natural reservoir in which there is located a project that uses a method (including a method that uses carbon dioxide miscible, hydrocarbon miscible, thermal or chemical processes but not including a secondary recovery method) that is designed to recover petroleum from the reservoir that is incremental to the petroleum that would be recovered therefrom by primary recovery and a secondary recovery method if

  • (a) a specified royalty provision applies in the year or in the immediately following taxation year in respect of the production, if any, or any portion thereof from the reservoir or in respect of the ownership of property to which such production relates;

  • (b) the reservoir is located on a reserve within the meaning of the Indian Act; or

  • (c) the reservoir is located in the Province of Ontario.

• (3) For the purposes of subsection 5(8) and section 6 of the Act, where, in a taxation year, one or more particular projects is located in one or more particular reservoirs and each particular project would, but for this subsection, be a prescribed project in the year with respect to each particular reservoir in which it is located and each particular reservoir would, but for this subsection, be a prescribed reservoir in the year with respect to each particular project located in it, the following rules apply:

  • (a) subject to paragraph (b), where a particular project is located in two or more particular reservoirs, the particular reservoirs shall be deemed to be a single prescribed reservoir in the year and the particular project shall be deemed to be a prescribed project in the year located in that prescribed reservoir; and

  • (b) where

    • (i) a particular project is located in one or more particular reservoirs, and

    • (ii) one or more other particular projects is each located in one or more of the particular reservoirs referred to in subparagraph (i),

    the particular reservoirs referred to in subparagraph (i) shall be deemed to be a single prescribed reservoir and the particular projects described in subparagraphs (i) and (ii) shall be deemed to be a single prescribed project in the year located in that prescribed reservoir.

Prescribed Exploration and Development Expenses

• 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.