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.
Recommended Solution:
1) Review of the Act: Canadian exploration expenses ("CEE") (defined in paragraph 66.1(6)(a)) and Canadian development expenses ("CDE") (defined in paragraph 66.2(5)(a)) represent specific expenses incurred by a taxpayer. Where the CEE and CDE expenses are incurred by a partnership and allocated to each partner, the expenses would not qualify as CEE and CDE expenses since the expenses were not incurred by the partner. Administratively, however, the Department has allowed each partner to include their CEE and CDE allocations in their respective CEE and CDE pools. This administrative position has not been extended to flow-through shares and to date it has not been an issue.
In this particular case, the resource expenditures allocated by the partnership to Oilco will not be eligible for renunciation to its flow-through share investors pursuant to subsections 66(12.6) and 66(12.62) and as such, GAAR would not be an issue.
Other Comments:
The flow-through share rules are intended to encourage new resource expenditures by permitting such expenditures by corporations to be renounced in favour of investors who are better able to take advantage of the related deductions. In order to qualify as a valid renunciation under subsections 66(12.6) and 66(12.62), the resource expenditures must be incurred after the flow-through share agreement has been entered into.
The "Draft Amendments to the Income Tax Act and Related Statutes" issued by the Honourable Michael H. Wilson Minister of Finance in July 1990 introduces new provisions into the Act to recognize CEE and CDE incurred by partnerships and allocated to the partners. Proposed subsection 66(10) will prevent the "warehousing" of resource expenditures incurred prior to the existence of a flow-through share agreement.
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