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.
DATE: July 5, 1982
TO - HEAD OFFICE Compliance Directorate Technical Applications Section
FROM- TORONTO DISTRICT OFFICE Basic File Section 142.51 R. Munro, Large File Case Manager Tel. (416) 369-3908
ATTENTION Mr. W. Lucas
RE: Acceptance by Revenue Canada, Taxation of Revised T-3015's (Frontier Exploration Allowance Threshold Allocation Forms)
This memorandum is being written pursuant to our telephone conversation of June 28th past. As I briefly discussed therein, as a result of our audit work on a taxpayer, it would appear that two of the agreements filed pursuant to Regulation 1207(3) are now invalid. As the legislation appears to be silent on amending these elections, the question in our minds at the moment is: Under what circumstances, if any, will the Department, as an administrative practice, accept revised T3015's because of audit adjustments on Reassessment?
Because the case in point XXXX is in respect of the 1977 taxation year, we are facing an impending statute barred date. Accordingly, it would be most appreciated if it would be possible to resolve this issue with the greatest of dispatch (especially in the event of an affirmative decision, to enable us to incorporate the numbers in the schedules for Reassessment).
I hope what follows will be of use in highlighting some of the salient features of the issue at hand.
1. Discussion of Legislation
We are concerned with the frontier exploration allowance (FEA) (allowed by Section 65 of the Act and detailed in Regulation 1207). Regulation 1207(1) provides that a taxpayer may deduct the lesser of (a) his frontier exploration base (FEB) as of the end of the year, or (b) his net income for the year before the deduction. Expenditures which generate FEB are Canadian exploration expenses (CEE) incurred between April 1, 1977 and March 31, 1980 in respect of an oil or gas well in excess of a $5,000,000 threshold amount for each oil or gas well. Each taxpayer participating in drilling a well has a threshold amount in respect of that well, and the sum of the threshold amounts for that well is $5,000,000. In addition, where a well was in process before April 1, 1977, a taxpayer's threshold amount is reduced by his share of CEE incurred from July 1, 1976 to March 31, 1977. In summary, the FEA legislation allows for an additional bonus 66-2/3% write off of CEE in excess of a threshold amount for oil and gas wells.
Regulation 1207(3) specifies the parameters of the "threshold amount" in respect of an oil or gas well. Subparagraph (3) (a) talks of the filing of "an agreement ... in prescribed form" and provides that: (l) the amount of threshold allocated to a taxpayer cannot be in excess of his share of CEE incurred on that well from July 1, 1976 to date (up to March 31, 1980) and
(2) the total threshold allocated must be $5,000,000. Subparagraph (c) says that "where no such agreement has been filed in respect of the well, $5,000,000."
2. Form T-3015 (see attached)
Some of the salient points about this form are as follows:
(1) as will be noted on the bottom, it has been "prescribed by the Minister of National Revenue"
(2) the third point on the form is: "Only one agreement will be accepted for each oil or gas well"
(3) part of the fourth point made is that: "the copies should accompany the taxpayer's income tax return for the first taxation year in which he desires to establish his threshold amount..."
(4) as discussed above, there is a note under "B" which states that the amount in column "A" cannot exceed the amount in column "B"
(5) this schedule provides for an agreement (vs election) and, relatedly, the signature of an authorized signing officer
XXXX
4. R.C.T. Policy
(a) Re: T-3015's Our Calgary District Office was forced to look at the problem of invalid T-3015's (resulting from audits) some time ago. Jim Walker has advised that Calgary District Office does not, as a rule, accept revised T-3015's.
Edmonton District office audit staff have indicated that they are following a similar practice.
Corporate Rulings has in discussions to date acknowledged that the law simply does not provide for revised T-3015's to be filed.
Our review of the legislation and the T-3015 itself lead us to concur with the policy followed by Calgary and Edmonton. Our arguments would be: (1) since the provisions of Regulation 1207(3) (a)(i) have been violated, that subparagraph (c) comes into play; and (2) that the legislation in effect does not allow the Minister to determine the allocation.
(The above is supported by the statement on the form itself that says: "Only one agreement will be accepted for each oil or gas well.")
(b) Other Forms
Our brief review of Department policy with other forms can be summarized as follows:
Section of Description Form Type Policy Ref. Comments
I.T.A.
125 Small Bus. Ded'n. T2013 Agree- IT64R -revised agreement
Allocation ment Para. 45 allowed in limited
circumstances 22 Sale of Accts.
Rec'ble T2022 Election IT188 -no amendments
para 5 85 Transfer of T2057 Election IC 76-19R -cannot be revoked
Property para 3 -can be amended in
to a Corp'n. limited circumstances
(e.g. clerical errors
valuation adjustments 78 Unpaid Amts T2047 Agreement IT 109R -no amendments
para 11
In summary, it is our view that the Department is very hesitant, for obvious reasons, to allow revised/amended forms. However, there are instances, albeit few, where the Department will allow revisions to forms as filed.
5. Miscellaneous Considerations
In addressing the issue of whether or not to accept revised T-3015's, both in a general sense and in our particular case, a number of considerations crossed our minds beyond the scope of the "strict letter of the law." For what they are worth, the following are some of these thoughts/questions:
(1) If the Department is going to accept a revised T-3015 in those circumstances where audit adjustments result in an invalid T-3015, will the Department accept a revised T-3015 in those circumstances where audit adjustments result in less than optimal tax positions for the affected taxpayers?
(2) The situation at hand involves only two non-arm's length taxpayers. While Calgary has advised that the problem of invalid elections has arisen in a few instances, the thought which comes to mind is: If there are only very few cases, perhaps the Department would want to consider the circumstances of each case, say at the Appeal stage, rather than issue a blanket statement or simply stand firm in light of the few taxpayers/nature of the legislation involved.
XXXX
6. Summary
Our review of the legislation in connection with the "Frontier Exploration Allowance" leads us to the conclusion that we, at the District office level, are not in a position to accept revised T-3015's, the possible need for which arises from audit reassessment adjustments.
The question that we would like addressed is: Under what circumstances, if any, will the Department, as an administrative practice, accept revised T-3015's because of audit adjustments on Reassessment?
Because we have an impending statute barred date situation, we would appreciate as early a reply as possible.
If the writer can be of any assistance in this matter, please do not hesitate to call.
Thank you for your efforts in this matter.
R. Munro, Basic File Section
RM:mh Encl.
c.c. F. Knox, Toronto District Office M. Hiltz, Corporate Rulings J. Walker, Calgary District Office
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