File 11667-5(sm)
Section 162
Telephone No. (613) 954-8585
Fax No. (613) 990-1233
XXXXX
XXXXX July 25, 1995
Dear XXXXX
Thank you for your letter dated April 6, 1995, with documents attached, requesting a GST application ruling with respect to the amounts received as a result of an agreement between Her Majesty the Queen in Right of Canada and XXXXX
Statement of Facts
Based on the information provided in your letter and the attached documentation, we understand the facts to be as follows:
1. XXXXX Her Majesty the Queen in Right of Canada, represented by XXXXX ("the Government"), entered into an agreement on August 5, 1993, with XXXXX
2. Under the agreement, the Government grants XXXXX the right to do exploratory work and the right to drill for oil and gas (excluding crude bitumen) XXXXX
3. The term of the agreement is from August 5, 1993, to December 31, 1996, subject to possible extensions and reductions to the term as provided in the agreement.
4. XXXXX is required to pay the Government an annual rent XXXXX for each hectare in the permit lands x
5. XXXXX is required to commence a seismic program prior to March 31, 1994, and is required to shoot a minimum of XXXXX kilometres.
6. If XXXXX fails to commence the seismic program by March 31, 1994, the agreement is terminated.
7. XXXXX retains all ownership and trading rights to the seismic data and any seismic information relayed to the Government is to be held in confidence during the term of the agreement.
8. XXXXX is to pay the Government an amount equal to 20% of the proceeds of all sales of the seismic data.
9. If XXXXX is willing, and provided that they fulfill the requirements of the contract concerning the shooting of seismic data, XXXXX may elect to commence to drill a test well at a location of its choice on the permit lands prior to December 31, 1996.
Ruling Requested
You have asked that we confirm that a payment to the Government consisting of 20% of the proceeds of the sales of seismic data made by XXXXX is not subject to the GST as it is deemed not to be consideration in respect of a supply pursuant to subsection 162(1) of the Excise Tax Act.
Ruling Given
Provided that the statement of facts is correct and is complete, we rule that the payments are royalty payments or similar fees and are deemed not to be consideration for the right pursuant to subsection 162(1).
These rulings are given subject to the general limitations and qualifications set forth in GST Memorandum Chapter 1, Section 1.4, "Goods and Services Tax Rulings" issued by the Department of National Revenue, September 1994 and are binding. Also, these rulings are based upon the Excise Tax Act and regulations thereunder in their present form and do not take into account the effects of any proposed or future amendments thereto.
If any further information is required, please contact Sherry Moran at (613) 952-8807 or Sandy Marr at (613) 957-8253.
Sincerely,
H.L. Jones
Director
General Applications Division
GST Rulings and Interpretation Directorate
| c.c.: |
S. Marr - XXXXX
S. Moran |
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