| 921916 | |
| 24(1) | John Chan |
| (613) 957-8975 |
Attention: 19(1)
August 31, 1992
Dear Sirs:
Re: Section 66.7 of the Income Tax Act
This is in reply to your letter of June 23, 1992 in which you requested a technical interpretation of certain provisions of the "successor rules" contained in section 66.7 of the Income Tax Act (the "Act").
24(1)
Your first enquiry is 24(1) regarding whether an election under subsection 66.7(7) of the Act by a person (the "transferor") who transfers Canadian resource properties to a successor corporation can be made in respect of all or one of the pools of Canadian exploration and development expense ("CEDE"), Canadian exploration expense ("CEE"), Canadian development expense ("CDE") and Canadian oil and gas property expense ("COGPE") which would be available for deduction by the successor corporation under subsections 66.7(1), (3), (4) and (5), respectively.
It is our view that an election under subsection 66.7(7) is made with respect to all of the pools of CEDE, CEE, CDE and COGPE of the transferor at the time of succession and cannot be made in respect of only one of these pools of the transferor unless, of course, the transferor only has one pool at the time of the succession. We understand that this was the intent of subsection 66.7(7).
The second issue which you posed,24(1), pertains to the interpretation of subparagraphs 66.7(10)(g)(iii) to (vi) and paragraph 66.7(4)(b). You suggest that one could interpret these provisions as permitting a successor corporation to deduct successored CDE and COGPE only to the extent of income from the production from Canadian resource properties which were transferred to the successor corporation but not to the extent of income from the proceeds of disposition of these properties.
The scheme of the successor rules is such that a successor corporation may deduct, inter alia, the CDE of an original owner of Canadian resource properties under subsection 66.7(4) to the extent of income from production from the particular Canadian resource properties. However, the income, itself, from production from Canadian resource properties is not deducted by the successor corporation 24(1) Generally, income from the disposition of successored Canadian resource properties is sheltered by successored CDE and COGPE under subparagraphs 66.7(4)(a)(ii) and (5)(a)(ii), respectively.
Our interpretation of subparagraphs 66.7(10)(g)(iii) to (vi) is that income from the production from Canadian resource properties owned by the "transferor", as referred to in paragraph 66.7(10)(g), would be deemed to be the transferee's income therefrom. Similarly, income from the disposition in the year of any Canadian resource properties owned by the transferor would be deemed to be the transferee's income therefrom. We would not, however, interpret subparagraphs 66.7(10)(g)(iii) to (vi) to mean that the transferor's income from the disposition of Canadian resource properties are deemed to be income from the production from Canadian resource properties for purposes of, inter alia, subclause 66.7(4)(b)(i)(A)(II).
It is our understanding that paragraph 66.7(10)(g) provides for the income from the disposition in the year of any Canadian resource properties owned by the transferor to be deemed to be the transferee's income therefrom in order to facilitate the transferee's computation of its successored CEDE and CEE deductions under subsections 66.7(1) and (3), respectively. Paragraphs 66.7(1)(b) and (3)(b) generally refer to, inter alia, the successor's income from the disposition of a Canadian resource property. For purposes of paragraphs 66.7(4)(b) and (5)(b), however, the income from dispositions of Canadian resource properties referred to in subparagraphs 66.7(10)(g)(iv) and (v) would not be relevant.
These comments are merely the expressions of opinion of those Revenue Canada officials named herein and as such should not be construed as advance income tax rulings, nor are they binding on the Department. Our practice is to make this specific disclaimer in all instances in which we provide an opinion. We refer you in this respect to paragraphs 21 and 22 of Information Circular 70-6R2.
Yours truly,
Section ChiefResource Industries SectionManufacturing Industries, Partnerships and Trusts DivisionRulings Directorate