Principal Issues:
Will the Alberta Royalty Tax Credit require a reduction to the undeducted resource pool balances for CEE, CDE or COGOE.
Position TAKEN:
No pool reduction is required.
Reasons FOR POSITION TAKEN:
ARTC is determined based on Alberta production royalty and is not related to CEE, CDE or COGPE expenditures.
ISSUE SHEET
TOPIC: Alberta Royalty Tax Credit ("ARTC") and 66.2(5)(b)(xi) and 66.4(5)(b)(viii) of the Income Tax Act (the "Act").
In considering whether or not the ARTC is required to reduce the undeducted balance of cumulative Canadian development expense ("CCDE") or cumulative Canadian oil and gas property expense ("CCOGPE"), it is noted that 66.2(5)(b)(xi) and 66.4(5)(b)(viii) call for a deduction to the pool for assistance in respect of any Canadian development expense or Canadian oil and gas property expense respectively. For this purpose assistance is defined in 66(15)(a.1) as inter alia including any amount received or receivable by way of a deduction from tax. Accordingly, ARTC earned in respect of an expenditure that is Canadian development expense or Canadian oil and gas property expense, would be subject to 66.2(5)(b)(xi) or 66.4(5)(b)(viii) as the case may be.
According to the definition for "Alberta crown royalty" in 26(1) of the Alberta Corporate Tax Act, ARTC is determined only with reference to the amount of Alberta production royalty that is included in the computation of income by virtue of 12(1)(o) or 18(1)(m) of the Act. Alberta Interpretation Bulletin ACT-IT2R1 paragraphs 2(a) and (b) confirms that the "Alberta crown royalty" is the amount of royalty that is subject to 12(1)(o) and 18(1)(m) of the Act and paragraph 3 states that "Alberta crown royalty" excludes Alberta Freehold Mineral Tax, lease rent and bonus amounts, and interest on overdue royalty.
Position: ARTC is determined with respect to the amount of Alberta production royalty that is included in the computation of income by virtue of 12(1)(o) or 18(1)(m) of the Act. It does not appear that ARTC relates to any amount that is a Canadian exploration expense, Canadian development expense or Canadian oil and gas property expense. As a result 66.1(6)(b)(ix), 66.2(5)(b)(xi) and 66.4(5)(b)(viii) will not be applicable. We are not aware of any other circumstance that an undeducted resource pool balance would be reduced by ARTC.
