1 November 1991 External T.I. 91M11280 F - Foreign Exploration and Development Expenses

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.

QUESTION

30.     Subsection 66(4) of the Act provides for an amount that may be deducted in a year in respect of foreign exploration and development expenses ("FEDE").  If a taxpayer is entitled to an FEDE claim in year 1, but chooses not to take the deduction in calculating net income, is the balance of the FEDE pool reduced by the amount otherwise deductible in year 1 when calculating the claim for year 2?

         For example: FEDE available in 1991          $1,000                   Claimed in 1991                             nil                   Claim available in 1991              (100)                   Balance                                       $900

    Is the balance available for calculating the 1992 claim $1,000 or $900?

ANSWER

30.     In general terms, subsection 66(4) provides that a taxpayer may deduct the lesser of

         (a) FEDE to the extent that it was not deductible in a previous year, and

         (b) the greater of

               (i) up to 10% of the FEDE which was not deductible in a previous year, i.e., 10% of the amount determined in (a) above, and

               (ii) the income for the year computed under subparagraph 66(4)(b)(ii), i.e., income from the taxpayer's foreign resource properties.

In the above example, provided that the taxpayer's 1991 income from foreign resource properties as determined under subparagraph 66(4)(b)(ii) is nil, the balance available for calculating the 1992 claim would be $1,000.

Whatever amount up to $100 (10% of $1,000 computed under subparagraph 66(4)(b)(i)) that the taxpayer chooses to claim in 1991 would be the amount deducted for the year and would also be considered as the amount that was deductible in 1991 for purposes of calculating the 1992 claim. This is so solely by virtue of the income from foreign resource properties for 1991 being nil.

Had the taxpayer's 1991 income from foreign resource properties been greater than $100 and less than the available FEDE of $1,000, say income of $300, then the amount deductible for 1991 would be $300, i.e., the greater of $100 under subparagraph (b)(i) and $300 under subparagraph (b)(ii).  The taxpayer may then deduct up to $300 or nil in 1991.  Should the taxpayer choose to deduct an amount that is less than $300 in 1991, the remainder of the $300 that was not deducted would not be available for deduction in any subsequent year.