Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: Whether, for the purpose of determining the deduction from income from a particular property acquired by a successor corporation, the successor pool is required to be apportioned to each particular property, based on whether the expenses in the pool related to the particular property.
Position: No.
Reasons: The wording of clauses 66.7(3)(a)(i)(A) - CCEE, 66.7(4)(a)(i)(A) - CCDE and 66.7(5)(a)(i)(A) - CCOGPE establish a maximum deduction against income from a particular property acquired by a successor corporation based only on the amount of the particular successor pool immediately after the disposition of the particular property by the original owner. There is no wording to suggest that a further division or allocation of the successor pool is required to each particular property acquired from the original owner.
February 16, 2005
Ms. Christine Savage Reorganizations & Resources
Industry Specialist Services Division
112 Kent Street, 13th Floor, Tower B Marc Edelson, LL.B.
Ottawa, Ontario K1A 0L5 (613) 957-2123
2005-011467
Successor Pool Claim
This is in reply to correspondence received from Mr. Zul Ladak, Oil and Gas Industry Specialist, of the Technical Applications and Valuation Division, Calgary Tax Services TSO, dated February 4, 2005, and subsequent communications. In this letter, unless otherwise stated all statutory references are to the Income Tax Act (Canada) (herein, the "Act").
We have been asked to consider whether, in calculating the deduction from income from a particular property acquired by a successor corporation in a transaction to which the successor rules apply, the deduction by the successor corporation is based on the amount or portion of the successored pool that arose as a result of expenditures related to the particular property.
YOUR VIEWS
Mr. Ladak has pointed to the requirement that, where a successor pool deduction is claimed, the successor corporation must have acquired "a particular Canadian resource property" (subsections 66.7(3), (4) and (5)) and it must have income from production from "the particular resource property" (66.7(3)(b)(i)(C), 66.7(4)(b)(i)(B) and 66.7(5)(b)(i)(B)). He suggests that this language requires or implies that it is only the expenses in the successored pool that relate to the particular property that are available for deduction against income from the particular property.
It is our view that there is nothing in the wording of subsections 66.7(3), (4) or (5) or elsewhere in the Act that would require, for the purposes of the successor corporation rules, a separate tracking within a successor pool of each particular property's costs so as to limit the maximum deduction against income attributable to production from a particular property to that portion of the successor pool that is attributable to the particular property. For example, in calculating the maximum deduction that would be allowed under subsection 66.7(3), clause 66.7(3)(a)(i)(A) merely looks to "the cumulative Canadian exploration expense of the original owner determined immediately after the disposition of the particular property by the original owner". Similar wording is used with respect to cumulative Canadian development expense and cumulative
Canadian oil and gas property expense in clause 66.7(4)(a)(i)(A) and subparagraph 66.7(5)(a)(i), respectively. These provisions do not require any further division or allocation of the cumulative accounts to each particular property acquired by the successor corporation. By comparison, in the case of a taxpayer's cumulative foreign resource expense, where sourcing on a country-by-country basis is required, specific wording to that effect has been enacted.
We trust that our comments will be of assistance.
Ted Harris
Manager
Resources Industry Section
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Planning Branch
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