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.
Revenue Canada Round Table
Tax Executive Institute Conference
May, 1994
Question II (2)
RESOURCE INDUSTRY - LARGE CORPORATIONS TAX
"Take-or-Pay" reserves in the oil and gas industry are deductible in computing income pursuant to paragraph 20(1)(m). Why then is Revenue Canada not allowing them to be excluded from the base for the tax on large corporations pursuant to paragraph 181.2(3)(b)?
Department's Position
Revenue Canada stated its position at the Roundtable sessions of the 1991 and 1992 Canadian Petroleum Tax Society Conferences that a take-or-pay amount received by a corporate producer is regarded as an advance to the corporation under paragraph 181.2(3)(c). Application of paragraph 181.2(3)(b) to exclude an amount of a tax deductible reserve does not preclude the amount from being included in taxable capital under paragraph 181.2(3)(c) or (f) provided that the requirements of such paragraphs have been met.
The term "advance" often means simply "pay" or "pay money before it is due". The Black's Law Dictionary (6 ed) defines the term "advance" as "moneys paid before or in advance of the proper time of payment". In the case of TransCanada Pipelines Limited v. The Minister of Revenue (Ontario), (1992) 62 O.A.C. 105, the Ontario Court of Appeal quoted with approval from the Dictionary of Business and Finance (1957) at page 9 as follows:
... the definitions of "advance"... as a "payment made beforehand or in anticipation" and a "payment made before... the completion of an obligation for which it is to be paid".
The Court concluded that the take-or-pay payments were advance payments for the purpose of calculating Ontario capital tax under the Corporation Tax Act (Ontario). These support our view that a take-or-pay amount is an advance for the purpose of paragraph 181.2(3)(c).
Author: Peter Lee
File: 941037
Date: May 3, 1994
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