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
Canadian Petroleum Tax Society Conference
June, 1994
Question No. 15
CANADIAN EXPLORATION EXPENSE
A well is drilled for the purpose of determining the existence of petroleum or natural gas. The well, which is not an exploratory probe, results in the discovery of a natural accumulation of carbon dioxide in the same taxation year in which the drilling expense is incurred.
Would the expenses of drilling the well and subsequent expenses incurred in determining the extent of the accumulation of carbon dioxide qualify as CEE by virtue of subparagraph 66.1(6)(a)(i) or clause 66.1(6)(a)(ii.1)(A) of the Act?
Department's Position
It is our understanding that carbon dioxide in a natural accumulation would not be natural gas because natural gas for purposes of the Act generally comprises hydrocarbons. Consequently, the well would not qualify as a discovery well for purposes of clause 66.1(6)(a)(ii.1)(A) of the Act. Also, the expenses of drilling such well would not qualify as CEE by virtue of the exclusion of "expenses incurred in drilling or completing an oil or gas well" in subparagraph 66.1(6)(a)(i) of the Act. However, the expenses incurred to drill the well would be eligible for treatment as Canadian development expenses under clause 66.2(5)(a)(i)(B) of the Act and the subsequent drilling expenses to determine the extent of the carbon dioxide accumulation would be eligible for treatment as Canadian development expenses under clause 66.2(5)(a)(i)(D) of the Act where the carbon dioxide is for injection into a petroleum or natural gas formation.
Author: Bruce Rankin
File: 941033
Date: May 17, 1994
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