1991 CPTS ROUNDTABLE
QUESTION
5. Regulation 1211 prescribes amounts for purposes of paragraphs 12(1)(o) and 18(1)(m) of the Act. These prescribed amounts include rental payments to the Crown of up to $2.50 per hectare for property described in subparagraph 66(15)(c)(i) of the Act from which there was no taking of petroleum, natural gas or related hydrocarbons, i.e. non-producing lands. It has been Revenue Canada's policy to stream these amounts against resource profits computed under Regulation 1204. What is the Department's justification for deducting amounts which are specifically not related to the production of oil and gas in computing resource profits from the production of oil and gas?
ANSWER
5. This question was the subject of Question 23 at the 1988 Revenue Canada Roundtable (Canadian Petroleum Tax Journal, Fall 1988, page 320).
Stated therein is our view that all amounts must be related to a source of income to be deductible under the Act. If there is no potential source of income, there is no deduction.
The potential source of income for non-producing lands would generally be from production. Thus, in our view, such deductions may reasonably be regarded as applicable to a taxpayer's income from production within the meaning of Regulation 1204(1)(f).
We are aware that the decision of the Federal Court Trial Division in Gulf Canada Limited v. The Queen, 90 DTC 6622 (under appeal), casts aspersions on the above position. However, our position remains the same pending the outcome of the appeal of the Gulf case.
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