In January 2020, a principal-business corporation (“PBC”) renounces (with an effective date of December 31, 2019, under the look-back rule) $5M of Canadian exploration expense (CEE) on shares issued in December 2019 pursuant to a December 2019 flow-through share agreement. The PBC incurs $3M of CEE in August 2020, and the remaining $2M in July of 2021.
CRA discussed the application of draft s. 211.91(2.1), which relevantly provided that: the deadline for filing Part XII.6 tax returns was extended by one year; and Part XII.6 tax is to be applied (in the context of a 2019 agreement) as if the renounced CEE was incurred in January 2020, if the expenses were incurred in 2020 and, otherwise, 12 months earlier than when they were actually incurred.
In computing Part XII.6 tax of the PBC for February to June 2020, it is deemed to have incurred $3M of CEE before the end of those months, so that the tax would be computing (applying the prescribed rate of 2%) in accordance with the formula:
($5M - $3M) X (0.02/12 + 0/10) = $3, 333.33
so that the tax for each month during that period is $3,333.
The remaining $2M of CEE is deemed to have been incurred by the end of July 2020, so that the PBC would not have any Part XII.6 tax payable respecting its $5M renunciation after June 2020.
Given the one-year deferral, the Part XII.6 tax return (Form T101C) for 2020 would be required to be filed before March of 2022.