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.
Y.S. 7299 Author Section Chief District Office? Mail Control & OPRU Taxpayer's file
XXXX
Your letter of October 10, 1985, regarding the taxation of oil royalties has been forwarded to me for response. I apologize for the delay in replying.
The resource allowance was originally introduced to partially compensate a taxpayer for the federal tax which was payable on provincial royalties paid by the taxpayer. The resource allowance is a deduction in computing income equal to 25% of certain resource profits calculated as set forth in the Income Tax Regulations. Although the Regulations previously included all royalties in resource profits upon which the resource allowance was computed, in 1981 the Regulations were amended to exclude certain royalties from the resource profits of a taxpayer. The Budget Papers released with the federal budget of November 12, 1981 stated:
"The resource allowance deduction of 25 percent of resource profits is provided in lieu of deductibility of provincial levies. Effective January 1, 1982 the allowance for oil and gas will be restructured so that it applies to those who are directly affected by the non- deductibility of Crown royalties and taxes. It will apply to the total production profits of a taxpayer before deduction of royalties payable to other participants in the well. Those with an interest in production but whose royalty income is not directly subject to non- deductible Crown levies will no longer receive a resource allowance..."
Effective January 1, 1983, the regulations under The Mineral Taxation Act of Saskatchewan were amended to reduce the "producing tract tax" to nil with the result that holders of royalties on freehold lands in Saskatchewan no longer had provincial Crown levies related to such royalties. Accordingly, such royalties were no longer eligible for the resource allowance and therefore the reassessments which are being issued for 1983 and 1984 to disallow the resource allowance on such royalties are in accordance with the provisions of the Regulations. Amendments to the Regulations are the responsibility of the Honourable Michael Wilson, Minister of Finance, to whom a copy of your letter has already been forwarded.
I regret that my reply cannot be more favourable.
Yours sincerely,
LM/bl/2/7299/2.4
December 3, 1985 L. Miller (995-1178)
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