7-910384
Subject: "Stacking" of JEC's
Your memorandum of February 5, 1991 asked for confirmation of the Department's position in regards to the renunciation by a joint exploration corporation ("JEC") of Canadian exploration expenses ("CEE") pursuant to subsection 66(10.1) in circumstances where such CEE had previously been renounced to it under the same provision of the Act.
We enclose herewith, a copy of Rulings' reply to a question (including our internal back-up analysis) on this matter which was addressed at the Round Table session of the June 1991. Canadian Petroleum Tax Society Conference held in Calgary. You will note that our position which is supported by both Justice and Finance is clear; namely, that CEE renounced pursuant to subsection 66(10.1) to a shareholder corporation that itself qualifies as a JEC does not qualify for further renunciation in the context of either the JEC or flow-through share provisions of the Act.
Accordingly, statements made at p. 427 of the 1987 edition of C.C.H.'s "Canadian Taxation of Oil and Gas Income" advocating the efficacy of so-called JEC stacking arrangements are contrary to and do not accord with the Department's position on this matter.
Yours truly,
Section ChiefResource Industries SectionBilingual Services and Resource Industries DivisionRulings Directorate