ontario regulation 60/06
made under the
Corporations Tax Act
Made: March 1, 2006
Filed: March 6, 2006
Published on e-Laws: March 7, 2006
Printed in The Ontario Gazette: March 25, 2006
Amending Reg. 183 of R.R.O. 1990
(General)
1. (1) Subsection 101 (1) of Regulation 183 of the Revised Regulations of Ontario, 1990 is amended by adding the following definition:
“Canadian fossil fuel source” means,
(a) a natural accumulation of petroleum or natural gas in Canada that is not a mineral resource in Canada,
(b) an oil or gas well in Canada, or
(c) a bituminous sands deposit or oil shale deposit that is a mineral resource in Canada;
(2) The definition of “Canadian oil or gas resource property” in subsection 101 (1) of the Regulation is revoked and the following substituted:
“Canadian oil or gas resource property” means a Canadian resource property,
(a) that is described in paragraph (a), subparagraph (b) (i) or paragraph (c) or (d) of the definition of “Canadian resource property” in subsection 66 (15) of the Income Tax Act (Canada),
(b) that would be property described in subparagraph (b) (ii) or paragraph (e) or (f) of that definition if the only mineral resource referred to in that subparagraph or paragraph were a petroleum deposit, or
(c) that is a right to or interest in any property described in clause (a) or (b);
(3) Subsection 101 (1) of the Regulation is amended by adding the following definitions:
“Canadian resource property” has the meaning given to that expression by subsection 66 (15) of the Income Tax Act (Canada);
“Crown entity” means a person referred to in subclause 11.0.1 (3) (a) (i), (ii) or (iii) of the Act;
(4) The definition of “disposition of property” in subsection 101 (1) of the Regulation is revoked.
(5) Clause (k) of the definition of “earned depletion base” in subsection 101 (1) of the Regulation is revoked and the following substituted:
(k) the amount, if any, by which the sum of all amounts that would be determined at the particular time under clauses 109 (2) (b) and (c), as those clauses read on May 6, 1997, exceeds the sum of all amounts that would be determined at the particular time under clause 109 (2) (a), as that clause read on May 6, 1997;
(6) Subsection 101 (1) of the Regulation is amended by adding the following definition:
“fossil fuel” means petroleum, natural gas or a related hydrocarbon;
(7) Subsection 101 (1) of the Regulation is amended by adding the following definitions:
“gross resource profits from oil or gas operations” means, in respect of a corporation for a taxation year, the amount determined for the corporation for the taxation year under subsection (1.1);
“oil or gas resource activity” means,
(a) the production of fossil fuel or sulphur from,
(i) oil or gas wells in Canada,
(ii) a natural accumulation of petroleum or natural gas in Canada, or
(iii) petroleum deposits in Canada,
(b) the processing in Canada of heavy crude oil recovered from an oil or gas well in Canada to any stage that is not beyond the crude oil stage or its equivalent,
(c) ownership of a right to a rental or royalty computed by reference to the amount or value of production from a property in Canada that is a natural accumulation of petroleum or natural gas, an oil or gas well or a petroleum deposit, or
(d) Canadian field processing;
(8) Subsection 101 (1) of the Regulation is amended by adding the following definition:
“production royalty” means, in respect of a corporation, an amount in respect of a particular Canadian resource property that is included in computing the corporation’s income as a rental or royalty computed by reference to the amount or value of fossil fuel produced from a Canadian fossil fuel source if,
(a) the corporation has a Crown royalty in respect of,
(i) the production of fossil fuel from the Canadian fossil fuel source, or
(ii) the ownership of property to which the production relates and the Crown royalty is computed by reference to an amount of production from the Canadian fossil fuel source, and it is reasonable to consider that the corporation would have had the Crown royalty if the corporation’s only source of income had been the rental or royalty in respect of the particular property, or
(b) the corporation would have a Crown royalty described in clause (a) but for an exemption or allowance, other than a rate of nil, that is provided under a statute by a Crown entity;
(9) Subsection 101 (1) of the Regulation is amended by adding the following definition:
“resource profits from oil or gas operations” means, in respect of a corporation for a taxation year, the amount determined for the corporation for the taxation year under subsection (1.3);
(10) Subsection 101 (1) of the Regulation is amended by adding the following definition:
“specified royalty” means a royalty,
(a) the cost of which is a Canadian development expense for the purposes of the Act, and
(b) that was created after December 5, 1996, otherwise than pursuant to an agreement in writing made on or before that date, as part of a transaction or event or series of transactions or events as a consequence of which depreciable property was acquired at a capital cost that was less than the amount that would have been the fair market value of the depreciable property determined without regard to the royalty;
(11) Section 101 of the Regulation is amended by adding the following subsections:
(1.1) A corporation’s gross resource profits from oil or gas operations for a taxation year for the purposes of this Part is calculated using the formula,
A + B
where,
“A” is the amount, if any, by which the sum of “C” and “D” exceeds “E”,
“B” is the amount, if any, by which the sum of “F”, “G” and “H” exceeds “I”,
“C” is the sum of all amounts, if any, that are included in computing the corporation’s income for the year from the disposition of a Canadian oil or gas resource property by reason of,
(a) subsection 59 (2) of the Income Tax Act (Canada), as it would apply for the purposes of the Act if it were read without reference to subsection 64 (1) of the Income Tax Act, Revised Statutes of Canada, 1952, chapter 148, or
(b) paragraph 59 (3.2) (b) or 59.1 (b) of the Income Tax Act (Canada), as made applicable by section 15 of the Act,
“D” is the amount, if any, by which the amount included in computing the corporation’s income for the year from the disposition of a Canadian oil or gas resource property by reason of paragraph 59 (3.2) (c) of the Income Tax Act
(Canada), as made applicable by section 15 of the Act, exceeds the proceeds of disposition of properties described in subparagraph (b) (i) of the definition of “Canadian resource property” in subsection 66 (15) of the Income Tax Act (Canada) that became receivable by the corporation after December 31, 1982 and before the end of the year, to the extent that the proceeds have not been deducted for a prior taxation year in determining the amount of “D” or the amount under subclause (a) (ii) of the definition of “gross resource profits from oil or gas operations” in subsection (1), as that definition read before May 7, 1997,
“E” is the sum of all amounts, if any, deducted in computing the corporation’s income for the year by reason of paragraph 59.1 (a) of the Income Tax Act (Canada), as made applicable by subsection 15 (1) of the Act, in respect of a disposition of a Canadian oil or gas resource property,
“F” is its total income for the taxation year from,
(a) the production in Canada of fossil fuel or sulphur from,
(i) oil or gas wells in Canada operated by it,
(ii) natural accumulations of petroleum or natural gas in Canada operated by it, or
(iii) petroleum deposits in Canada operated by it,
(b) the processing in Canada of heavy crude oil recovered from an oil or gas well in Canada to any stage that is not beyond the crude oil stage or its equivalent, and
(c) Canadian field processing,
“G” is the sum of all amounts, if any, each of which is included in computing the corporation’s income for the year in respect of a rental or royalty that is computed by reference to the amount or value of production from a property in Canada that is a natural accumulation of petroleum or natural gas, an oil or gas well or a petroleum deposit and from which a person had a right to take or remove fossil fuel,
“H” is, if the corporation owns all the issued and outstanding shares of the capital stock of a railway company throughout the year, the amount that may reasonably be considered to be the railway company’s income for its taxation year ending in the year from the transportation of the corporation’s fossil fuel or sulphur from petroleum deposits in Canada operated by the corporation,
“I” is the sum of the corporation’s losses, if any, for the year from sources described in “F”.
(1.2) For the purposes of subsection (1.1), a corporation’s incomes and losses for a taxation year from sources described in “F” and “G” in that subsection shall be computed in accordance with the Act on the assumption that the corporation had no income or loss for the year except from those sources and was allowed no deductions in computing its income for the year other than,
(a) amounts deducted or deductible for the year under section 18, 19 or 21 of the Act that are not in respect of property described in subparagraph (b) (i) of the definition of “Canadian resource property” in subsection 66 (15) of the Income Tax Act (Canada);
(b) amounts deducted or deductible for the year under subsection 17 (2) or (6) or section 29 of The Corporations Tax Application Rules, 1972; and
(c) any other deductions for the year, except a deduction under section 103, subsection 104 (2) or section 106, that may reasonably be regarded as applicable to those sources.
(1.3) A corporation’s resource profits from oil or gas operations for a taxation year for the purposes of this Part is the amount, if any, calculated using the formula,
J – (K + L + P)
where,
“J” is the amount of the corporation’s gross resource profits from oil or gas operations for the year as determined under subsection (1.1),
“K” is the sum of all amounts deducted in computing the corporation’s income for the year other than,
(a) an amount already deducted in computing the corporation’s gross resource profits from oil or gas operations for the year,
(b) an amount deducted for the year under,
(i) paragraph 20 (1) (ss) or (tt) of the Income Tax Act (Canada), as made applicable by subsection 11 (1) of the Act,
(ii) section 60 of the Income Tax Act (Canada), as made applicable by section 16 of the Act,
(iii) section 103 of this Regulation,
(iv) subsection 1202 (2) of the regulations made under the Income Tax Act
(Canada), as made applicable by subsection 104 (2) of this Regulation, or
(v) subsection 106 (1) of this Regulation,
(c) an amount deducted under section 66.2 of the Income Tax Act (Canada), as made applicable by section 19 of the Act, in computing the corporation’s income for the year to the extent the amount is attributable to a right, licence or privilege to store fossil fuel underground in Canada,
(d) an amount deducted in computing income for the year from a business or other source that does not include any oil or gas resource activity of the corporation, and
(e) an amount deducted in computing the corporation’s income for the year to the extent that the amount,
(i) relates to an activity, other than an oil or gas resource activity of the corporation, that is,
(A) the production, processing, manufacturing, distribution, marketing, transportation or sale of any property,
(B) the rendering of a service by the corporation to another person for the purpose of earning income of the corporation, or
(C) another activity carried out for the purpose of earning income from property, and
(ii) does not relate to an oil or gas resource activity of the corporation,
“L” is the sum of all amounts each of which is the amount, if any, by which “M” exceeds “N”,
“M” is the amount that would have been charged to the corporation by a person or partnership with whom the corporation was not dealing at arm’s length, if the corporation and that person or partnership had been dealing at arm’s length,
(a) for the use in the year of a property, other than money, owned by that person or partnership, or
(b) for the provision in the year by that person or partnership of a service to the corporation,
“N” is the sum of,
(a) the amount charged to the corporation for the use in that period of the property referred to in the definition of “M” or for the provision in that period of the service referred to in the definition of “M”, and
(b) the portion of the amount described in the definition of “M” that, if it had been charged, would not have been deductible in computing the corporation’s resource profits from oil or gas operations, and
“P” is the sum of all amounts added under subsection 80 (13) of the Income Tax Act
(Canada), as made applicable by subsection 26 (1) of the Act, in computing the corporation’s gross resource profits from oil or gas operations for the year.
(12) Section 101 of the Regulation is amended by adding the following subsection:
(4) The following rules apply for the purposes of calculating the amount of a corporation’s gross resource profits from oil or gas operations for a taxation year under subsection (1.1):
1. The corporation’s income or loss from a source described in the definition of “F” in that subsection does not include any of the following:
i. Any income or loss derived from transporting, transmitting or processing fossil fuel or sulphur, other than the income or loss, if any, from processing described in clause (b) of the definition of “F” in subsection (1.1).
ii. Any income or loss arising because of the application of paragraph 12 (1) (z.1), (z.2) or (z.5) of the Income Tax Act (Canada), as made applicable by subsection 11 (1) of the Act, or section 107.3 of the Income Tax Act (Canada), as made applicable by subsection 32 (1) of the Act.
iii. Any income or loss that can reasonably be attributable to a service rendered by the corporation, other than processing described in clause (b) or (c) of the definition of “F” in subsection (1.1).
2. If the corporation has income from a source described in the definition of “C”, “D”, “E” or “F” in subsection (1.1) and also has income from another source, the amounts referred to in clauses (1.2) (a) and (b) shall not include any amount that is not in respect of expenses incurred in oil or gas operations.
(13) Subparagraph 1 ii of subsection 101 (4) of the Regulation, as made by subsection (12), is revoked and the following substituted:
ii. If the taxation year ends after December 31, 2002, any income or loss arising because of the application of paragraph 12 (1) (z.1) or (z.2) of the Income Tax Act (Canada), as made applicable by subsection 11 (1) of the Act, section 107.3 of the Income Tax Act (Canada), as made applicable by subsection 32 (1) of the Act, or subsection 11.0.1 (4) of the Act.
(14) Section 101 of the Regulation is amended by adding the following subsection:
(5) The following rules apply for the purposes of the definition of “oil or gas resource activity” in subsection (1):
1. The production of a substance by a corporation includes exploration and development activities of the corporation with respect to the substance, whether or not extraction of the substance has begun or will ever begin.
2. The production or processing of a substance by a corporation, or both, include activities performed by the corporation that are ancillary to or in support of the production or processing of that substance by the corporation.
3. The production or processing of a substance by a corporation, or both, includes an activity, including the ownership of property, that is undertaken before the extraction of the substance and that is undertaken for the purpose of extracting or processing the substance.
4. The production or processing of a substance by a corporation, or both, includes activities that the corporation undertakes as a consequence of producing or processing that substance, whether or not the production or processing of the substance has ceased.
5. Despite clauses (a), (b), (c) and (d) of the definition of “oil or gas resource activity” in subsection (1) and paragraphs 1 to 4, neither production nor processing of a substance includes any activity included in production or processing described in the definition of “F” in subsection (1.1) if,
i. the activity,
A. is the transporting, transmitting or processing of fossil fuel or sulphur, other than processing described in clause (b) of the definition of “oil or gas resource activity” in subsection (1), or
B. can reasonably be attributed to a service rendered by the corporation, and
ii. revenue from the activity is not taken into account in determining the amount of the corporation’s gross resource profits from oil or gas operations under subsection (1.1).
(15) Subsection 101 (6) of the Regulation is amended by striking out the portion before clause (a) and substituting the following:
(6) For the purposes of this Part, other than sections 108 and 108.4, if a corporation is a member of a partnership at the end of a fiscal period of the partnership,
. . . . .
(16) Clause 101 (6) (a) of the Regulation is revoked and the following substituted:
(a) the corporation’s share of the partnership’s resource profits from oil or gas operations for the fiscal period shall be included in computing the corporation’s resource profits from oil or gas operations for the taxation year of the corporation in which the fiscal period ended;
(17) Subsection 101 (9) of the Regulation is revoked and the following substituted:
(9) If an expense of a type prescribed by subsection (9.1) was incurred by an entity after the end of a corporation’s last taxation year ending before April 20, 1977 was renounced after 1981 in favour of the corporation and was deemed to be an expense of the corporation for the purposes of subsection 18 (5) or (6) of the Act, the expense, if it is not an amount in respect of financing,
(a) shall be deemed for the purposes of the definition of “earned depletion base” in subsection (1) to have been the same type of expense and to have been incurred by the corporation at the time the expense was incurred by the joint exploration corporation; and
(b) shall be deemed for the purposes of section 108 and for the purposes of determining the amount of the corporation’s resource profits from oil or gas operations to have been the same type of expense and to have been incurred by the corporation at the time it was deemed to have been incurred for the purposes of subsection 18 (5) or (6) of the Act.
(9.1) The following types of expenses are prescribed for the purposes of subsection (9):
1. A Canadian exploration and development expense, other than the cost of a Canadian resource property acquired by a joint exploration corporation.
2. A Canadian exploration expense.
3. A Canadian development expense, other than an amount referred to in paragraph (e) of the definition of “Canadian development expense” in subsection 66.2 (5) of the Income Tax Act (Canada).
(18) Subsection 101 (14) of the Regulation is revoked.
(19) Section 101 of the Regulation is amended by adding the following subsection:
(15) The following rules apply in determining the amount of a corporation’s resource profits from oil or gas operations for a taxation year under subsection (1.3):
1. A corporation is considered not to deal at arm’s length with a partnership if the corporation does not deal at arm’s length with any member of the partnership.
2. A partnership is considered not to deal at arm’s length with another partnership if any member of the first partnership does not deal at arm’s length with any member of the second partnership.
3. If a corporation is a member, or is deemed by this paragraph to be a member, of a partnership that is a member of another partnership, the corporation is deemed to be a member of the other partnership.
4. The provision of a service to a corporation does not include the provision of a service by an individual in the individual’s capacity as an employee of the corporation.
(20) Section 101 of the Regulation is amended by adding the following subsection:
(16) For the purposes of the definition of “production royalty” in subsection (1), each of the following amounts is a Crown royalty of a corporation in respect of the production of fossil fuel from a Canadian fossil fuel source or in respect of the ownership of property to which the production relates:
1. An amount included in computing the corporation’s income for a taxation year under subsection 11.0.1 (3) of the Act in respect of the production or ownership less all reimbursements, contributions and allowances referred to in section 80.2 of the
Income Tax Act (Canada) that are received or receivable by the corporation in respect of that amount.
2. An amount in respect of the production or ownership that is prescribed in section 108.2 for the purposes of subsection 11.0.1 (3) of the Act less all reimbursements, contributions and allowances referred to in section 80.2 of the Income Tax Act (Canada) that are received or receivable by the corporation in respect of that amount.
3. An amount that is not deductible in respect of the production or ownership in computing the corporation’s income for a taxation year by reason of subsection 11.0.1 (5) of the Act less all reimbursements, contributions and allowances referred to in section 80.2 of the Income Tax Act (Canada) that are received or receivable by the corporation in respect of that amount.
4. An amount in respect of the production or ownership that is prescribed by section 108.2 for the purposes of subsection 11.0.1 (5) of the Act less all reimbursements, contributions and allowances referred to in section 80.2 of the Income Tax Act (Canada) that are received or receivable by the corporation in respect of that amount.
5. An amount by which the corporation’s proceeds of disposition of the fossil fuel are increased under subsection 108.4 (1).
6. An amount by which the corporation’s cost of acquisition of the fossil fuel is reduced under subsection 108.4 (4).
(21) Paragraphs 1, 2, 3 and 4 of subsection 101 (16) of the Regulation, as made by subsection (20), are amended by striking out “section 80.2 of the Income Tax Act (Canada)” wherever it appears and substituting in each case “subsection 26 (6) of the Act”.
2. (1) Clause 103 (1) (a) of the Regulation is revoked and the following substituted:
(a) 25 per cent of the amount, if any, by which the corporation’s resource profits from oil or gas operations for the taxation year, if the year ends after December 31, 1998, exceed four times the sum of the amounts, if any, deducted in computing the corporation’s income for that year under subsection 1202 (2) of the regulations made under the Income Tax Act (Canada), as made applicable by subsection 104 (2); and
(2) Subsections 103 (2) and (3) of the Regulation are revoked.
3. (1) Clause 108 (a) of the Regulation is revoked and the following substituted:
(a) if the taxation year commences after May 6, 1997 and ends before January 1, 2003, the amount, if any, that would be determined in respect of the corporation for the year under subsection 1210 (1) of the regulations made under the Income Tax Act (Canada) if the corporation’s adjusted resource profits for the year were determined under subsection 1210 (2) of those regulations and paragraph (c) of the definition of “A” in that subsection were applied on the basis that,
(i) an amount that is deducted in computing income under any provision of the Income Tax Act (Canada) that applies with or without modifications for the purposes of the Corporations Tax Act is calculated as the amount deducted in computing income for the purposes of the Corporations Tax Act under the provision as it applies for the purposes of that Act, if the deduction under the provision of the Income Tax Act (Canada) is not prohibited under paragraph (c) of the definition of “A” in subsection 1210 (2) of those regulations,
(ii) an amount that is deducted in computing income under a provision of the Act that applies instead of a comparable provision of the Income Tax Act
(Canada) is deducted instead of the amount determined under the comparable provision of the Income Tax Act (Canada), if the deduction under the comparable provision of the Income Tax Act (Canada) is not prohibited under paragraph (c) of the definition of “A” in subsection 1210 (2) of those regulations, and
(iii) an amount that is deducted in computing income under a provision of the Act where there is no comparable provision in the Income Tax Act (Canada) is deducted under that Act; and
(2) Section 108 of the Regulation is amended by striking out “and” at the end of clause (a) and by adding the following clause:
(a.1) if the taxation year ends after December 31, 2002, the amount, if any, determined in respect of the corporation for the year under subsection (2); and
(3) Section 108 of the Regulation is amended by adding the following subsections:
(2) The amount determined under this subsection in respect of a corporation for a taxation year ending after December 31, 2002 is the amount, if any, calculated using the formula,
[0.25 × (Q – R)] – S
where,
“Q” is the corporation’s adjusted resource profits for the year, as determined under this section,
“R” is the total of all amounts each of which is a Canadian exploration and development overhead expense made or incurred by the corporation in the year, other than an amount that is a Canadian exploration and development overhead expense because it is deemed to be a Canadian exploration expense or a Canadian development expense under subsection 21 (2) or (4) of the Income Tax Act
(Canada), and
“S” is the amount, if any, determined under subsection (3) in respect of the corporation for the year.
(3) The amount determined under this subsection in respect of a corporation for a taxation year is the amount, if any, by which “T” exceeds “U” where,
“T” is the total of all amounts determined under paragraphs 1205 (1) (e) to (k) of the regulations made under the Income Tax Act (Canada) in computing the corporation’s earned depletion base at the end of the year, as determined under section 1205 of those regulations, other than any portion of that total determined under paragraph 1205 (1) (i) of those regulations as a consequence of a disposition in the year of property in circumstances in which subsection 1202 (2) of those regulations applies, and
“U” is the amount equal to 33 1/3 per cent of the total of all amounts determined under paragraphs 1205 (1) (a) to (d.2) of the regulations made under the Income Tax Act
(Canada) in computing the corporation’s earned depletion base at the end of the year, as determined under section 1205 of those regulations.
(4) A corporation’s adjusted resource profits for a taxation year for the purposes of this section is the amount, which may be a positive or negative amount, calculated using the formula,
V + W – X
where,
“V” is the amount of the corporation’s resource profits for the year, as determined under subsection (5),
“W” is the total of all amounts each of which is the designated percentage, as determined under subsection (7), of the corporation’s share for the year of the adjusted resource profits of a partnership, as determined under subsection (6), for a fiscal period of the partnership ending in the year, and
“X” is the amount, if any, by which the sum of “Y” and “Z” exceeds the amount of “AA” where,
“Y” is the total of all amounts each of which is an amount, other than a production royalty or a specified royalty, that is included in the corporation’s gross resource profits for the year under subsection 1204 (1) of the regulations made under the Income Tax Act (Canada) as a rental or royalty computed by reference to the amount or value of fossil fuel produced from a Canadian fossil fuel source,
“Z” is 50 per cent of all amounts in respect of specified royalties that are included in the corporation’s gross resource profits for the year under subsection 1204 (1) of the regulations made under the Income Tax Act
(Canada), and
“AA” is the total of all outlays and expenses that were made or incurred in respect of the amounts included in the calculation of “Y”, to the extent the outlays and expenses were deducted in computing the corporation’s gross resource profits for the year under subsection 1204 (1) of the regulations made under the Income Tax Act (Canada).
(5) The amount of a corporation’s resource profits for a taxation year for the purposes of this section is the amount that would be determined in respect of the corporation for the year under subsection 1204 (1.1) of the regulations made under the Income Tax Act (Canada) if the following rules applied:
1. In determining the corporation’s gross resource profits for the year under subsection 1204 (1) of those regulations,
i. no amount shall be included under paragraph 1204 (1) (a) of those regulations, and
ii. no amount shall be included in the corporation’s income for the year from the processing in Canada of ore described in clause 1204 (1) (b) (iv) (A), (B) or (C) of those regulations.
2. References to a resource activity in subparagraph 1204 (1.1) (a) (iv), subclause 1204 (1.1) (a) (v) (A) (I) and clause 1204 (1.1) (a) (v) (B) of those regulations shall be read as references to a resource activity other than an activity described in paragraph (d) of the definition of “resource activity” in subsection 1206 (1) of those regulations.
3. The corporation’s gross resource profits for the year under subsection 1204 (1) of those regulations and its resource profits for the year under subsection 1204 (1.1) of those regulations shall be determined on the basis that,
i. no amount is deductible in computing the corporation’s income for the year in respect of a rental or royalty that is paid or payable by the corporation and computed by reference to the amount or value of fossil fuel produced from a Canadian fossil fuel source, other than an amount in respect of a rental or royalty described in paragraph 1, 2, 3 or 4 of section 108.2, an amount that is a production royalty or an amount paid or payable in respect of a specified royalty,
ii. no amount is deductible in computing the corporation’s income for the year under paragraph 20 (1) (e), (e.1), (e.2) or (f) of the Income Tax Act (Canada) or as, on account of or in lieu of, interest in respect of a debt owed by the corporation,
iii. no amount is deductible in computing the corporation’s income under paragraph 20 (1) (v.1) of the Income Tax Act (Canada), any of sections 65 to 66.7 of that Act, subsection 17 (2) or (6) of the Income Tax Application Rules or section 29 of those Rules,
iv. section 11.0.1 and subsection 31 (1.2) of the Act apply in computing the corporation’s income for the year,
v. an amount that is deducted in computing income under any provision of the Income Tax Act (Canada) that applies with or without modifications for the purposes of the Corporations Tax Act shall be calculated as the amount deducted in computing income for the purposes of the Corporations Tax Act under the provision as it applies for the purposes of that Act, if the deduction under the provision of the Income Tax Act (Canada) is not prohibited under subparagraph i, ii or iii,
vi. an amount that is deducted in computing income under a provision of the Act that applies instead of a comparable provision of the Income Tax Act
(Canada) shall be deducted instead of the amount determined under the comparable provision of the Income Tax Act
(Canada), if the deduction under the comparable provision of the Income Tax Act (Canada) is not prohibited under subparagraph i, ii or iii, and
vii. an amount that is deducted in computing income under a provision of the Act where there is no comparable provision in the Income Tax Act (Canada) shall be considered to have been deducted under the Income Tax Act (Canada).
4. The corporation’s share of the income or loss of a partnership from any source shall be deemed to be nil.
5. Each of subsections 1204 (1) and (1.1) of the regulations made under the Income Tax Act
(Canada) shall be deemed to allow the computation of a negative amount if the sum of the amounts deducted under the subsection exceeds the sum of the amounts added under that subsection.
(4) Paragraph 3 of subsection 108 (5) of the Regulation, as made by subsection (3), is amended by adding the following subparagraph:
iv.1 subsections 26 (4.1), (6) and (7) of the Act apply in computing the corporation’s income for the year, if the year begins after December 31, 2006,
(5) Section 108 of the Regulation is amended by adding the following subsection:
(6) For the purposes of the definition of “W” in subsection (4), a corporation’s share for a taxation year ending after December 31, 2002 of a particular partnership’s adjusted resource profits for a fiscal period ending in the year is determined as follows:
1. If the corporation does not hold a direct interest in the particular partnership at the end of the fiscal period, the corporation’s share of the partnership’s adjusted resource profits is deemed to be nil.
2. If the corporation holds a direct interest in the particular partnership at the end of the fiscal period, the corporation’s share of the partnership’s adjusted resource profits is the amount that may reasonably be considered to represent the corporation’s share of the partnership’s adjusted resource profits for the fiscal period, determined under subsection (4) as if,
i. the particular partnership and every other partnership in which the corporation has an indirect interest through the particular partnership were corporations, each having a taxation year that is the same as its fiscal period,
ii. subparagraph 3 iv of subsection (5) applies to the particular partnership, but only if the corporation is a majority interest partner in that partnership at the end of the fiscal period,
iii. subparagraph 3 iv of subsection (5) applies to another partnership in which the corporation held an indirect interest through the particular partnership, but only if the corporation is a majority interest partner in the particular partnership at the end of the fiscal period and is a majority interest partner in the other partnership at any time in the fiscal period,
iv. subparagraphs 3 v, vi and vii of subsection (5) do not apply, and
v. the designated percentage for the purposes of subsection (4) in respect of each partnership’s interest in another partnership were 100 per cent.
(6) Subparagraphs 2 ii and iii of subsection 108 (6) of the Regulation, as made by subsection (5), are amended by striking out “subparagraph 3 iv of subsection (5) applies” wherever it appears and substituting in each case “subparagraphs 3 iv and iv.1 of subsection (5) apply”.
(7) Section 108 of the Regulation is amended by adding the following subsections:
(7) For the purposes of the definition of “W” in subsection (4), the designated percentage of a corporation’s share for a taxation year of the adjusted resource profits of a partnership for a fiscal period ending in the year is determined as follows:
1. The corporation’s designated percentage is 100 per cent if the corporation holds a direct interest in and is a majority interest partner of the partnership at the end of the fiscal period and does not have, through that partnership, an indirect interest in another partnership, other than,
i. a partnership of which the corporation is a majority interest partner at any time in the fiscal period, or
ii. a partnership that carries on no resource activity as defined in subsection 1204 (6) of the regulations made under the Income Tax Act (Canada).
2. If the fiscal period begins before January 1, 2007 and the corporation holds a direct interest in the partnership at the end of the fiscal period but is not a majority interest partner at that time, the corporation’s designated percentage is the sum of the following percentages:
i. 100 per cent multiplied by the ratio of the number of days in the fiscal period that are before January 1, 2003 to the total number of days in the fiscal period.
ii. 90 per cent multiplied by the ratio of the number of days in the fiscal period that are after December 31, 2002 and before January 1, 2004 to the total number of days in the fiscal period.
iii. 75 per cent multiplied by the ratio of the number of days in the fiscal period that are after December 31, 2003 and before January 1, 2005 to the total number of days in the fiscal period.
iv. 65 per cent multiplied by the ratio of the number of days in the fiscal period that are after December 31, 2004 and before January 1, 2006 to the total number of days in the fiscal period.
v. 35 per cent multiplied by the ratio of the number of days in the fiscal period that are after December 31, 2005 and before January 1, 2007 to the total number of days in the fiscal period.
(8) For greater certainty, nothing in subparagraph 2 i of subsection (6) affects the nature or extent of any partner’s interest in any partnership for the purposes of,
(a) the definition of “W” in subsection (4); or
(b) paragraph 4 of subsection (5).
4. The Regulation is amended by adding the following sections:
Amounts Prescribed for the Purposes of Section 11.0.1 of the Act
108.1 (1) In this section,
“eligible tax” means, in respect of a corporation for a taxation year, a tax levied under the laws of a province for the taxation year,
(a) that is imposed only on persons engaged in mining operations in the province or who hold non-Crown royalties in respect of a mine in the province, or both, and
(b) that is paid or payable to,
(i) the province,
(ii) an agent of Her Majesty in right of the province, or
(iii) a municipality in the province, in lieu of taxes on property that is not residential property or in lieu of taxes on any interest or right in property that is not residential property;
“industrial mine” means any work or undertaking in which industrial mineral ore is extracted or produced;
“industrial mineral” means a mineral, other than,
(a) a mineral obtained from a mineral resource, and
(b) a fossil fuel;
“industrial mineral ore” includes an unprocessed industrial mineral or a substance bearing an industrial mineral;
“industrial mining operations” means,
(a) the extraction or production of industrial mineral ore from or in an industrial mine,
(b) the transportation of industrial mineral ore to the point of egress from the industrial mine, and
(c) the processing of industrial mineral ore,
(i) before or in the course of its transportation to the point of egress from the industrial mine, and
(ii) before its removal from the industrial mine;
“industrial non-Crown royalty” means a royalty contingent upon production of an industrial mine or computed by reference to the amount or value of production from industrial mining operations in a province, but does not include a royalty that is payable to the Crown in right of Canada or a province;
“mine” includes any work or undertaking in which a mineral ore is extracted or produced and includes a quarry;
“mineral ore” includes an unprocessed mineral or mineral-bearing substance;
“mining operations” means,
(a) the extraction or production of mineral ore from or in a mine,
(b) the transportation of mineral ore to the point of egress from the mine, and
(c) the processing of mineral ore,
(i) to the prime metal stage or its equivalent if the mineral ore is not iron ore, or
(ii) to a stage that is not beyond the pellet stage or its equivalent if the mineral ore is iron ore;
“non-Crown royalty” means a royalty contingent upon production of a mine or computed by reference to the amount or value of production from mining operations in a province, but does not include a royalty that is payable to the Crown in right of Canada or a province;
“processing” includes all forms of beneficiation, smelting and refining;
“specified income” means, in respect of a corporation for a taxation year, the corporation’s income from industrial mining operations in a province for the taxation year that is derived from industrial mining operations in the province, as computed under the laws of the province that impose an eligible tax.
(2) The sum of the following amounts is prescribed as a deduction from a corporation’s income from a business or property for a taxation year for the purposes of subsection 11.0.1 (2) of the Act:
1. The amount of all eligible taxes paid or payable by the corporation for the taxation year on the corporation’s specified income for the taxation year.
2. The amount of all eligible taxes paid or payable by the corporation for the taxation year on the amount of any industrial non-Crown royalty included in computing the income of the corporation for the taxation year.
108.2 The following amounts are prescribed for the purposes of subsections 11.0.1 (3) and (5) of the Act:
1. An amount paid or payable to or received or receivable by the Crown in right of Canada for the use and benefit of a band or bands as defined in the Indian Act (Canada).
2. An amount paid or payable to or received or receivable by a Crown entity if the amount,
i. may reasonably be regarded to be in respect of a rental for any property described in subparagraph (b) (ii) of the definition of “Canadian resource property” in subsection 66 (15) of the Income Tax Act (Canada), and
ii. was paid or payable or received or receivable before the commencement of production of minerals in reasonable commercial quantities from the property referred to in subparagraph i.
3. An amount paid or payable to or received or receivable by a Crown entity if the amount may reasonably be regarded to be in respect of a rental for a right, licence or privilege to store fossil fuel underground in Canada.
4. An amount equal to the lesser of,
i. an amount,
A. that was paid or payable to or received or receivable by a Crown entity as a rental for property or a portion of a property described in paragraph (a) of the definition “Canadian resource property” in subsection 66 (15) of the
Income Tax Act (Canada), and
B. that was payable or receivable in a taxation year in which there was no taking of fossil fuel from the property or portion of the property to which the rental relates, and
ii. an amount equal to $2.50 times the number of hectares of the property or portion of the property to which the amount referred to in subparagraph i relates.
108.3 For the purposes of subsection 11.0.1 (4) of the Act, a corporation’s prescribed resource loss, if any, for a taxation year is the amount determined using the formula,
BB – CC
where,
“BB” is the total of all amounts each of which is a Canadian exploration and development overhead expense made or incurred by the corporation in the year, other than an amount that is a Canadian exploration and development overhead expense because it is deemed to be a Canadian exploration expense or a Canadian development expense under subsection 21 (2) or (4) of the Income Tax Act
(Canada), and
“CC” is the corporation’s adjusted resource profits for the year as determined under section 108.
5. The Regulation is amended by adding the following section:
Rules Prescribed for the Purposes of Subsection 26 (4.1) of the Act
108.4 (1) If, after December 31, 2006, a corporation described in subsection 26 (4.1) of the Act disposes of property described in that subsection for no proceeds of disposition or for proceeds of disposition less than the property’s fair market value at the time of the disposition, the corporation is deemed to receive proceeds of disposition on the disposition of the property equal to the fair market value of the property at the time of the disposition.
(2) For the purposes of subsection (1), the fair market value at the time of disposition of a property described in subsection 26 (4.1) of the Act is equal to the amount by which “DD” exceeds “EE” where,
“DD” is the average proceeds of disposition per unit of the property received or receivable by the corporation from persons other than Crown entities on dispositions of the same type of property in the month that included the time of disposition, and
“EE” is the sum of,
(a) the total of all expenses per unit of the property, including depreciation, incurred by the corporation in respect of that month that may reasonably be attributed to transmitting, transporting, marketing or processing the property, to the extent that those expenses are reasonable and necessary and do not include any cost of acquisition by the corporation of the property, and
(b) the amount in respect of the unit disposed of by the corporation that may reasonably be considered to be paid or payable to or received or receivable by the Crown in right of Canada for the use and benefit of a band or bands as defined in the Indian Act (Canada).
(3) For the purposes of subsection (2), if a Crown entity disposes of the property or part of it to another Crown entity, both Crown entities shall be deemed to be the same Crown entity.
(4) If, after December 31, 2006, a corporation described in subsection 26 (4.1) of the Act acquires property described in that subsection that was produced in the operation described in that subsection for an amount in excess of the property’s fair market value at the time of the acquisition, the corporation shall be deemed to have acquired the property at the fair market value of the property at the time of the acquisition.
(5) For the purposes of subsection (4), the fair market value of a unit of property acquired by the corporation from a Crown entity is equal to the sum of,
(a) the amount per unit, if any, paid or payable to the corporation by the Crown entity; and
(b) the amount per unit, if any, paid or payable to the Crown in right of Canada by the Crown entity for the use and benefit of a band or bands as defined in the Indian Act (Canada).
6. (1) Subclause 201 (6) (a) (i) of the Regulation is revoked and the following substituted:
(i) the amount that would be its income for the year from the mine if its income for the year from the mine were determined without reference to paragraph 12 (1) (z.5) of the Income Tax Act (Canada) and without any deduction under this clause, clause (b), clause 11 (10) (b) of the Act or section 17, 18, 19 or 21 of the Act or any deduction in respect of exploration and development expenses permitted under The Corporations Tax Application Rules, 1972, and
(2) Subclause 201 (6) (b) (i) of the Regulation is revoked and the following substituted:
(i) the amount that would be its income for the year from the mines if its income for the year from the mines were determined without reference to paragraph 12 (1) (z.5) of the Income Tax Act (Canada) and without any deduction under this clause, clause 11 (10) (b) of the Act or section 17, 18, 19 or 21 of the Act or any deduction in respect of exploration and development expenses permitted under The Corporations Tax Application Rules, 1972, and
(3) Section 201 of the Regulation is amended by adding the following subsection:
(6.1) For the purposes of computing the income of a corporation for a taxation year ending after December 31, 2002, the references in subclauses (6) (a) (i) and (b) (i) to paragraph 12 (1) (z.5) of the Income Tax Act (Canada) shall be read as references to subsection 11.0.1 (4) of the Corporations Tax Act.
7. Clause (c) of the definition of “mining profits” in subsection 505 (3) of the Regulation is revoked and the following substituted:
(c) amounts deducted or deductible under section 18, 19 or 21 of the Act or subsection 17 (2) or (6) or section 29 of The Corporations Tax Application Rules, 1972 for the year to the extent they have not been taken into account in computing the corporation’s gross resource profits from oil or gas operations for the year under subsection 101 (1.1), and
8. (1) Subject to subsections (2), (3), (4), (5), (6), (7) and (8), this Regulation comes into force on the day it is filed.
(2) Subsections 1 (1), (3), (8), (10), (13) and (20) and 3 (2), (3), (5) and (7), section 4 and subsection 6 (3) shall be deemed to have come into force on January 1, 2003.
(3) Subsection 1 (2) shall be deemed to have come into force on December 1, 1991.
(4) Subsection 1 (4) shall be deemed to have come into force on December 23, 1998.
(5) Subsections 1 (5), (6), (7), (9), (11), (12), (14), (16), (17), (18) and (19), 2 (2) and 3 (1) and section 7 shall be deemed to have come into force on May 7, 1997.
(6) Subsections 1 (15) and (21) and 3 (4) and (6) and section 5 come into force on January 1, 2007.
(7) Subsection 2 (1) shall be deemed to have come into force on January 1, 1999.
(8) Subsections 6 (1) and (2) shall be deemed to have come into force on January 1, 1997.
