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.
Issue Sheet
A.A. Cameron
May 4, 1994
941034
Question
Question 21 for the round table at the June 1994 conference of the Canadian Petroleum Tax Society referred to the Department's response to question #16 at the 1988 CPTS conference. In that response the Department expressed the opinion that a Net Profits Interest (an "NPI") entitling the holder to share in the net proceeds of production and sale of oil or gas is a Canadian resource property by virtue of subparagraph 66(15)(c)(iv) of the Act. It was also stated that the existence of a right to share in other non-production sources of income (e.g., proceeds from sale of depreciables) would disqualify the NPI as a resource property.
In the current question it is asked how the Department will treat a NPI which includes a right to share in non-production sources of income for purposes of the Act?
Our Response
We indicated that this was a question of fact which would have to be resolved based upon all of the relevant facts of a given situation, in particular, with reference to the agreements, etc., which gave rise to the NPI. It was also indicated that we did not agree with the suggested treatment whereby a portion of an NPI so "disqualified" would be considered to be a Canadian resource property.
Discussion
In our view, the agreement or other documentation creating an NPI would have to be considered in order to properly determine the treatment to be accorded that NPI for the purposes of the Act. Given that the terms and conditions of such an agreement can vary widely, it is not possible to give an answer having general application. However, in our view, once it has been determined that a particular NPI does not qualify as Canadian resource property no portion thereof would so qualify, i.e, the property at issue for the purposes of the definition of Canadian resource property would remain the NPI.
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