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.
JOINT EXPLORATION CORPORATION
QUESTION 33
In the case of flow-through shares, there is a limitation that effectively restricts amounts that may be renounced to the balances of the cumulative resource pools (e.g., paragraph 66(12.6)(e) in the case of Canadian exploration expenses). There appears to be no similar restriction in the case of renouncements by joint exploration corporation ("JEC"). Does Revenue Canada agree that a renouncement may validly be made in the following situation?
Corporation A becomes a shareholder corporation of a JEC by subscribing for shares of JEC on January 1, Year 1. During Year 1, JEC incurs $1 million of Canadian development expenses. In December Year 1, the JEC sells all of its Canadian resource properties, for proceeds that exceed its aggregate balances in its cumulative Canadian exploration expense, cumulative Canadian development expense and cumulative Canadian oil and gas property expense pools. Notwithstanding that the JEC has a credit balance in its cumulative Canadian development expense pool prior to its year-end of December 31, Year 1, the JEC elects, by filing Form T2035 in January Year 2, to renounce the $1 million of Canadian development expense incurred in Year 1 in favour of Corporation A.
DEPARTMENT'S POSITION
Yes, the renouncement may validly be made in the above-noted situation and the JEC would include the renounced amount of $1 million in its Canadian development expense deductions for Year 1 pursuant to paragraph 66(10.2)(d), thereby resulting in an increase in the JEC's Year 1 income under paragraph 59(3.2)(c).
CPTS June 17, 1993
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