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.
19(1) J. Shaw
(613) 957-8968
Dear Mr. Kennedy:
We are writing in reply to your letter of June 27, 1989, requesting our opinion concerning the application of Part IV of the Income Tax Regulations (the "Regulations") to certain circumstances described therein related to the 24(1)
On receiving your June 27 letter, we requested the views of Mr.
19(1) as to the tax effects of the matters you had raised. A
copy of Mr. 19(1) July 24, reply is enclosed for your
convenience, 19(1) having earlier sent a copy to your Mr.
19(1)19(1) We met with 19(1) on
August 31 to discuss two significant concerns of ours regarding
the tax effects which 19(1) considered would obtain in
the situations you raised. 19(1) concedes that one of these
concerns is legitimate
24(1)
We had great
difficulty with this conclusion, as it seems to us that the
essence of a barter arrangement is the exchange of non-monetary
properties of approximately equal value, and, in this case,
24(1)24(1)
hardly an exchange of
properties having equal value. 19(1) has agreed to write to
us on this matter, explaining to us how his view of the matter
ought to prevail.
24(1)
Our comments are as follows:
1. Where a project owner takes a share of its production from the project for delivery and sale to customer f.o.b. a foreign port in a jurisdiction in which the project owner does not have a permanent establishment, the gross revenue from the sale would be allocated to the eleventh province pursuant to subparagraph 402(4)(c)(i) of the Regulations.
2. Where a project owner does as in item 1 above, but has a permanent establishment in the foreign jurisdiction, the rule in paragraph 402(4)(a) of the Regulations would apply to allocate the gross revenue from the sale to the permanent establishment in the foreign jurisdiction.
3. Where a project owner takes a share of its production from the project for delivery and sale to a customer fob. a Province of Canada in which the project owner does not have a permanent establishment the gross revenue from the sale would be allocated to the Province of Newfoundland by virtue of the provisions of paragraph 402(4)(b) of the Regulations.
4&5. In situations identical to item 3 except that the project owner has a permanent establishment in the Province of destination, pursuant to paragraph 402(4)(a) of the Regulations, the gross revenue would be allocated to the Province of destination.
24(1)
7. The seventh matter concerns the effect of a sale and repurchase of oil in the eleventh province by a project owner. We would consider this arrangement a sham within the meaning of sham set out in Snook v. London & West Riding Investments Ltd. (1967) 1 All E.R. 518 (CA) and cited with approval by then Supreme Court Chief Justice Estey in Stubart Investments Ltd. v. The Queen 84 DTC 6305, and disregard the sale for all purposes, including the Regulations.
8. The eighth matter deals with the effect of a member of a partnership taking the partnership's share of production for sale. As the partnership seems to exist solely for the purpose of attempting to attribute gross revenue to the offshore area, we would disregard any allocation of gross revenue to the offshore area which its existence purported to create.
While we have made every effort to ensure that our reply is as accurate as possible, it should be noted that the above comments are only expressions of opinion and as such should not be construed as advance income tax rulings, nor are they binding on the Department.
We are available should you need any additional explanations or clarifications of the foregoing.
Yours truly,
Director Bilingual Services and Resource Industries Division Rulings Directorate
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© Her Majesty the Queen in Right of Canada, 1989
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© Sa Majesté la Reine du Chef du Canada, 1989
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