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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
5-932932
XXXXXXXXXX Peter Lee
Attention: XXXXXXXXXX
February 23, 1994
Dear Sirs:
Re: Calculation of Resource Profits
This is in reply to your letter of September 30, 1993, wherein you requested our opinion on whether the Department's position as stated in the 1991 Canadian Petroleum Tax Society Conference (Q. 5) would be amended in light of the Federal Court of Appeal decision in the case of Gulf Canada Limited, 92 DTC 6123. We apologize for the delay in replying to you.
Pursuant to paragraph 1211(d) of the Income Tax Regulations (the "Regulations"), the prescribed amounts for the purposes of paragraphs 12(1)(o) and 18(1)(m) of the Income Tax Act (the "Act"), include rental payments to the Crown of up to $2.50 per hectare for property described in subparagraph 66(15)(c)(i) of the Act from which there was no taking of petroleum, natural gas or related hydrocarbons, i.e. non-producing lands. The Department's view in respect of these rental payments was stated in the 1991 conference as follows:
The potential source of income for non-producing lands would generally be from production. Thus, in our view, such deductions may reasonably be regarded as applicable to a taxpayer's income from production within the meaning of Regulation 1204(1)(f).
In light of the Federal Court of Appeal decision in the case of Gulf Canada Limited, it is our view that prior to the effective date of proposed subsection 1204(1.1) of the draft Regulations dated July 23, 1992, these rental payments in a particular year in respect of a particular non-producing property described in subparagraph 66(15)(c)(i) of the Act should not be included in "other deductions" under paragraph 1204(1)(f) of the Regulations by virtue of there being no physical production of petroleum, natural gas or related hydrocarbons from the particular property in that particular taxation year.
The foregoing comments represent our general views with respect to the subject matter. As indicated in paragraph 21 of Information Circular 70-6R2, the above comments do not constitute an advance income tax ruling and accordingly are not binding on the Department.
Yours truly,
for Acting Director
Manufacturing Industries, Partnerships
and Trusts Division
Rulings Directorate
Statement of Principal Issues
Re: XXXXXXXXXX Peter Lee
Calculation of Resource Profits 5-932932
Rental Payments on Non-Producing Crown Lands
February 21, 1994
Issue
Whether the Department's position with respect to the subject matter as stated in the 1991 Canadian Petroleum Tax Society Conference (Q. 5) would be amended in light of the Federal Court of Appeal decision in the case of Gulf Canada Limited, 92 DTC 6123.
Analysis and Positions Taken
In this case, the Federal Court of Appeal concluded that McNair, J. of the Federal Court - Trial Division, had reached the right conclusion that the "production" referred to in subparagraph 124.1(1)(b)(i) of the Act (now subparagraphs 1204(1)(b)(i) and (ii) of the Regulations) was production in the narrow sense of extraction from the ground. As a result, the Court decided that Gulf's taxable production profits should not be reduced by the capital cost allowance in respect of investments by Gulf in the Syncrude project for the extraction of oil from a mineral resource which was still some years away from production. The Federal Court of Appeal also concluded that the expression "income from production" means "income from the business of production" and not "income from the upstream business". Leave to appeal this case to the Supreme Court of Canada was denied on July 2, 1992. Based upon this case, it is our view that prior to the effective date of proposed subsection 1204(1.1) of the draft Regulations dated July 23, 1992, the Crown rental payments of up to $2.50 per hectare in a particular year in respect of a particular property described in subparagraph 66(15)(c)(i) of the Act should not be included in "other deductions" under paragraph 1204(1)(f) of the Regulations by virtue of there being no physical production of petroleum, natural gas or related hydrocarbons from the particular property in that particular taxation year.
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