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

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.

Prescribed Enhanced Recovery Equipment

• 5.4 (1) For the purposes of sections 82 and 82.1 of the Act, as those sections read before December 12, 1988, prescribed enhanced recovery equipment is property, of a taxpayer, that

  • (a) is included in Class 10 of Schedule II to the Income Tax Regulations by virtue of paragraph (j) of the description of that Class, and

  • (b) was acquired by the taxpayer for use in a project that was a prescribed project at the time the property was acquired,

  other than excluded property of the taxpayer.

• (2) For the purposes of subsection (1), excluded property of a taxpayer means property of the taxpayer

  • (a) that, before it was used by the taxpayer for the use described in paragraph (1)(b), was used by the taxpayer for another use; or

  • (b) that, before it was acquired by the taxpayer, was used for any purpose by any person with whom the taxpayer was not dealing at arm’s length.

Prescribed Oil or Gas Wells

5.5 For the purposes of section 83 and subsection 99(7) of the Act, as those provisions read before December 12, 1988, a prescribed oil or gas well is an oil or gas well the drilling of which began after March 31, 1985, but does not include a well that is

• (a) part of a prescribed project; or

• (b) part of a project described in paragraph (a) or (c) of the definition approved recovery project in subsection 79(1) of the Act, as that subsection read before December 12, 1988.

Prescribed Persons

6 For the purposes of subparagraph 7(1)(e)(iii) of the Act, Petro-Canada Limited is a prescribed person.

Prescribed Programs

6.1 For the purposes of subparagraph 9(6)(a)(i) of the Act, a prescribed program is:

• (a) in respect of outlays or expenses made or incurred after 1980 and before 1986, the program of incentives provided for under the Petroleum Incentives Program Act; and

• (b) in respect of outlays or expenses made or incurred after 1980 and before July 1, 1982, the program of payments from the Alberta Petroleum Incentives Program Fund provided for under the Petroleum Incentives Program Act of the Province of Alberta.

Instalment Base — Individuals

• 7 (1) Subject to subsection (2), for the purposes of sections 14 and 15 of the Act,

  • (a) instalment base of an individual, other than a trust, for a taxation year means the tax payable under Part I of the Act by him, computed without reference to subsection 9(5) thereof, for the immediately preceding taxation year; and

  • (b) instalment base of a trust for a taxation year means the tax payable on production revenue under Part I of the Act by it, computed without reference to subsection 9(5) thereof, for the immediately preceding taxation year.

• (2) For the purposes of sections 14 and 15 of the Act, the instalment base of an individual for a taxation year shall be deemed to be nil where

  • (a) the amount of his instalment base otherwise determined for the year, or

  • (b) the tax payable for the year

    • (i) under Part I of the Act by him, where the individual is not a trust, or

    • (ii) on production revenue under Part I of the Act by it, where the individual is a trust,

  is not more than $1,000.

Instalment Base — Corporations, Commissions and Associations

• 8 (1) Subject to subsections (6) and (8), for the purposes of sections 4 and 15 of the Act, first instalment base of a corporation, commission or association for a particular taxation year means the amount equal to the product obtained when the tax payable on production revenue under Part I of the Act by it, computed without reference to subsections 9(5) and 10(1) thereof, for its taxation year immediately preceding the particular year is multiplied by the ratio that 365 is of the number of days in that preceding year.

• (2) Subject to subsections (6) and (8), for the purposes of sections 14 and 15 of the Act, second instalment base of a corporation, commission or association for a particular taxation year means the amount of its first instalment base for the taxation year immediately preceding the particular year.

• (3) For the purposes of subsection (1), where the number of days in the taxation year of a corporation, commission or association immediately preceding the particular taxation year referred to therein is less than 183, the amount determined for it under that subsection shall be the greater of

  • (a) the amount otherwise determined for it under subsection (1); and

  • (b) the amount that would be determined for it under subsection (1) if the reference therein to “its taxation year immediately preceding the particular year” were read as a reference to “its last taxation year, preceding the particular year, in which the number of days exceeds 182”.

• (4) Notwithstanding subsections (1) and (2), for the purposes of sections 14 and 15 of the Act,

  • (a) where a particular taxation year of a new corporation that was formed as a result of an amalgamation (within the meaning assigned by section 87 of the Income Tax Act) is its first taxation year,

    • (i) its first instalment base for the particular year means the aggregate of all amounts, each of which is an amount equal to the product obtained when the tax payable on production revenue under Part I of the Act, computed without reference to subsections 9(5) and 10(1) thereof, by a predecessor corporation (within the meaning assigned by section 87 of the Income Tax Act) for its last taxation year is multiplied by the ratio that 365 is of the number of days in that year, and

    • (ii) its second instalment base for the particular year means the aggregate of all amounts each of which is an amount equal to the amount of the first instalment base of a predecessor corporation for its last taxation year; and

  • (b) where a particular taxation year of a new corporation referred to in paragraph (a) is its second taxation year,

    • (i) its first instalment base for the particular year means

      • (A) where the number of days in its first taxation year is greater than 182, the amount that would, but for this subsection, be determined under subsection (1) for the year, and

      • (B) in any other case, the greater of the amount that would, but for this subsection, be determined under subsection (1) for the year and its first instalment base for its first taxation year, and

    • (ii) its second instalment base for the particular year means the amount of the first instalment base of the new corporation for its first taxation year.

• (5) For the purposes of subsection (4), where the number of days in the last taxation year of a predecessor corporation is less than 183, the amount determined under subparagraph (4)(a)(i) in respect of the predecessor corporation shall be the greater of

  • (a) the amount otherwise determined under subparagraph (4)(a)(i) in respect of the predecessor corporation; and

  • (b) the amount of the first instalment base of the predecessor corporation for its last taxation year.

• (6) Subject to subsection (7), where a subsidiary (within the meaning of subsection 88(1) of the Income Tax Act) is winding up, and, at a particular time in the course of the winding up, all or substantially all of the property of the subsidiary has been distributed to a parent (within the meaning of subsection 88(1) of the Income Tax Act), the following rules apply:

  • (a) there shall be added to the amount of the parent’s first instalment base for its taxation year that includes the particular time the amount of the subsidiary’s first instalment base for its taxation year that includes the particular time;

  • (b) there shall be added to the amount of the parent’s second instalment base for its taxation year that includes the particular time the amount of the subsidiary’s second instalment base for its taxation year that includes the particular time;

  • (c) there shall be added to the amount of the parent’s first instalment base for its taxation year immediately following its taxation year referred to in paragraph (a) the amount that is the proportion of the subsidiary’s first instalment base for its taxation year referred to in paragraph (a) that

    • (i) the number of complete months that ended at or before the particular time in the taxation year of the parent that includes the particular time

    is of

    • (ii) 12; and

  • (d) there shall be added to the amount of the parent’s second instalment base for its taxation year immediately following its taxation year referred to in paragraph (a) the amount of the subsidiary’s first instalment base for its taxation year that includes the particular time.

• (7) The amount of an instalment of tax for the taxation year referred to in paragraphs (6)(a) and (b) that a parent is deemed under subsection 15(5) of the Act to have been liable to pay before the particular time referred to in subsection (6) shall be determined as if subsection (6) were not applicable in respect of a distribution of property described in that subsection occurring after the day on or before which the instalment was required to be paid.

• (8) Subject to subsection (9), where at a particular time a corporation (in this subsection referred to as the “transferor”) has disposed of all or substantially all of its property to another corporation with which it was not dealing at arm’s length (in this subsection and subsection (9) referred to as the “transferee”) and subsection 85(1) or (2) of the Income Tax Act applied in respect of the disposition of any of the property, the following rules apply:

  • (a) there shall be added to the amount of the transferee’s first instalment base for its taxation year that includes the particular time the amount of the transferor’s first instalment base for its taxation year that includes the particular time;

  • (b) there shall be added to the amount of the transferee’s second instalment base for its taxation year that includes the particular time the amount of the transferor’s second instalment base for its taxation year that includes the particular time;

  • (c) there shall be added to the amount of the transferee’s first instalment base for its taxation year immediately following its taxation year referred to in paragraph (a) the amount that is the proportion of the transferor’s first instalment base for its taxation year referred to in paragraph (a) that

    • (i) the number of complete months that ended at or before the particular time in the taxation year of the transferee that includes the particular time

    is of

    • (ii) 12; and

  • (d) there shall be added to the amount of the transferee’s second instalment base for its taxation year immediately following its taxation year referred to in paragraph (a) the amount of the transferor’s first instalment base for its taxation year that includes the particular time.

• (9) The amount of an instalment of tax for the taxation year referred to in paragraphs (8)(a) and (b) that a transferee is deemed under subsection 15(5) of the Act to have been liable to pay before the particular time referred to in subsection (8) shall be determined as if subsection (8) were not applicable in respect of a disposition of property described in that subsection occurring after the day on or before which the instalment was required to be paid.