4. A tax shall be paid as required by this Part on the production revenue of every person for each taxation year.

R.S., 1985, c. P-12, s. 4; R.S., 1985, c. 2 (2nd Supp.), s. 2.

5. (1) Petroleum and gas production revenue of a taxpayer for a taxation year is the amount, if any, by which the aggregate of all amounts each of which is the income of the taxpayer for the year from a source that is

(a) the production before October 1986 of petroleum or gas,

(b) the processing in Canada before October 1986 of petroleum to any stage that is not beyond the stage of crude oil or its equivalent, or

(c) an amount received or receivable by the taxpayer as a production royalty or resource royalty computed by reference to the amount or value of production after 1985 and before October 1986,

exceeds

(d) the aggregate of all amounts each of which is the loss of the taxpayer for the year from a source referred to in paragraph (a), (b) or (c),

computed in accordance with the Income Tax Act, if that Act were read without reference to paragraph 81(1)(r) thereof, on the assumption that the taxpayer had during the year no income or loss except from those sources and was allowed no deduction in computing his income for the year in respect of

(e) any amount, other than a prescribed amount, deductible in computing the taxpayer’s income for the year by virtue of section 20 (other than paragraph (1)(q), (s), (w), (x), (y) or (ii) thereof), 37 or 37.1, subsection 104(6) or (12) or Subdivision e of Division B of Part I of the Income Tax Act or the Income Tax Application Rules, 1971,

(f) the amount of any consideration paid or payable, other than a resource royalty or a production royalty, that may reasonably be considered to be for the use of, the right to use, or the preservation of any rights in respect of, property,

(g) any payout in respect of a production royalty or resource royalty received by the taxpayer that was computed by reference to the amount or value of production before 1986,

(h) any amount paid before 1981 in respect of the amount or value of production of petroleum or gas after 1980,

(i) any resource royalty or production royalty in respect of the year that was computed by reference to the amount or value of production before 1986 and was not paid on or before the day that is sixty days after the end of the year,

(i.1) any resource royalty in respect of the year, computed by reference to the amount or value of production after 1985, that is

(i) payable by the taxpayer to a non-resident person who would be liable to taxation thereon under subsection 26(1) if he had received the resource royalty, and

(ii) not paid by the taxpayer on or before the later of the day that is 60 days after the end of the year and February 28, 1987,

(j) any amount, other than a prescribed amount, paid or payable as a royalty, tax, lease rental or bonus referred to in paragraph 7(e),

(k) any deduction except to the extent that it may reasonably be considered to be applicable to those sources, and

(l) any resource royalty or production royalty computed by reference to the amount or value of production after September 1986.

(2) For the purposes of computing the income of a taxpayer for a taxation year from any source referred to in subsection (1),

(a) where petroleum is processed to any stage that is beyond the stage of crude oil or its equivalent, the petroleum shall be deemed to be disposed of at the time that it reaches the crude oil stage or its equivalent for proceeds of disposition equal to its fair market value at that time;

(b) where petroleum or gas produced or processed by a taxpayer is used or consumed at any time by that taxpayer for any purpose, other than a prescribed purpose, it shall be deemed to be disposed of by him at that time for proceeds of disposition equal to its fair market value at that time;

(c) where an amount has been included in computing a taxpayer’s income for the year or a previous taxation year in respect of petroleum or gas not delivered before the end of the year,

(i) there shall be deducted in computing the income of the taxpayer for the year a reasonable amount as a reserve in respect of petroleum or gas that it is reasonably anticipated will have to be delivered after the end of the year,

(ii) there shall be included in computing the income of a taxpayer for the year any amount so deducted in computing his income for the immediately preceding taxation year, except to the extent that the amount may reasonably be attributed to petroleum or gas produced after September 1986 and delivered before the end of the year, and

(iii) there shall be deducted in computing the income of the taxpayer for the year any repayment in the year by the taxpayer of an amount that has been included in computing his income for the year or a previous taxation year for the purposes of this Act in respect of petroleum or gas not delivered before the end of the year;

(c.1) where, in computing the income of a taxpayer for a taxation year, amounts are included in respect of petroleum or gas not delivered before the end of the year and the taxpayer has paid a reasonable amount in a particular taxation year to another taxpayer for undertaking to deliver the petroleum or gas, the taxpayers may jointly elect to be bound by the following subparagraphs by filing with the Minister a notice in writing on or before the earliest day on or before which either of the taxpayers is required under section 11 to file a return of production revenue for the taxation year in which the payment to which the election relates is made:

(i) the payment may be deducted in computing the income for the particular year of the taxpayer who made the payment and no amount is deductible in respect of the petroleum or gas under subparagraph (c)(i) in computing the income of that taxpayer for that or any subsequent taxation year, and

(ii) the taxpayer who received the payment shall be deemed to have received the payment in the course of a business on account of petroleum or gas not delivered before the end of the taxation year in which the payment was received and the payment shall be included in computing the income of that taxpayer for that year;

(d) there shall be included any amount required to be included in computing the income of the taxpayer by virtue of paragraph 12(1)(o) of the Income Tax Act that may reasonably be regarded as being in relation to the production of petroleum or gas before October 1986;

(e) there may be deducted such amount as an allowance, if any, in respect of the income of the taxpayer for the year from a source referred to in paragraph (1)(a), (b) or (c) as is allowed to the taxpayer by regulation; and

(f) there shall be deducted

(i) in computing the income of the taxpayer for the 1984 taxation year, any amount that would be deductible in the year by virtue of paragraph 20(1)(mm) of the Income Tax Act if the reference in that paragraph to "injected before that time" were read as "injected after 1980 and before that time", and

(ii) in computing the income of the taxpayer for a taxation year ending after 1984, any amount that would be deductible in the year by virtue of paragraph 20(1)(mm) of the Income Tax Act if the reference in that paragraph to "injected before that time" were read as "injected in the year and before October 1986".

(2.1) A taxpayer may deduct in computing his production revenue for a taxation year an amount equal to that portion of the taxpayer’s synthetic production revenue for the year that may reasonably be attributed to production of petroleum after April 1986 and before October 1986.

(3) Where a resource royalty or production royalty is not deductible in computing the production revenue of a taxpayer for a taxation year by virtue only of paragraph (1)(i), the resource royalty or production royalty may be deducted by the taxpayer in computing his production revenue for the subsequent taxation year in which the royalty is paid.

(3.1) Where a resource royalty is not deductible in computing the production revenue of a taxpayer for a taxation year by virtue only of paragraph (1)(i.1), the resource royalty may be deducted by the taxpayer in computing the taxpayer’s production revenue for the subsequent taxation year in which the royalty is paid.

(3.2) An individual, other than a trust, may deduct in computing his production revenue for the 1986 taxation year an amount not exceeding $1,500,000.

(4) Notwithstanding subsections (1) and (3), not more than one-half of any resource royalty computed by reference to the amount or value of production before 1982 may be deducted in computing the production revenue of a taxpayer that may reasonably be attributed to a period after 1981.

(5) Where a corporation is a beneficiary under a trust, an amount that may, having regard to all the circumstances including the terms and conditions of the trust arrangement, reasonably be considered to be the corporation’s share of an amount that would be the production revenue of the trust for a taxation year that may reasonably be attributed to the period in the year commencing after the later of May 31, 1982 and the date the corporation first became a beneficiary under the trust, if

(a) subsection (1) were read without reference to paragraph (c) thereof,

(b) the reference in paragraph (1)(d) to "paragraph (a), (b) or (c)" were read as a reference to "paragraph (a) or (b)", and

(c) the reference to "a production royalty" in paragraph (1)(f) were read as a reference to "production royalty in respect of production of petroleum or gas of the trust",

shall, if so designated by the trust in respect of the corporation in the trust’s return of production revenue for the year and not designated by the trust in respect of any other beneficiary thereunder, be deemed to be production revenue of the corporation for the taxation year of the corporation in which the taxation year of the trust ended.

(5.1) Where a taxpayer is a beneficiary under a trust, an amount, other than an amount deemed to be production revenue of the taxpayer pursuant to subsection (5), that may, having regard to all the circumstances, including the terms and conditions of the trust arrangement, reasonably be considered to be the taxpayer’s share of such portion of the production revenue of the trust for a taxation year as may reasonably be attributed to the period in the year commencing on the latest of

(a) the first day of the year,

(b) January 1, 1986, and

(c) the date on which the taxpayer first became a beneficiary under the trust,

shall, if so designated by the trust in respect of the taxpayer in the trust’s return of production revenue for the year and not designated under this section by the trust in respect of any other beneficiary thereunder, be deemed to be production revenue of the taxpayer for the taxation year of the taxpayer in which the taxation year of the trust ended.

(5.2) Subsection (5.1) does not apply in respect of a non-resident person not carrying on a business described in subparagraph 66(15)(h)(i) of the Income Tax Act through one or more fixed places of business in Canada.

(6) Where an amount, referred to in this subsection as the "designated amount", included in the production revenue of a trust for a taxation year is designated by the trust under subsection (5) or (5.1) in respect of a taxpayer, the amount of the tax paid by the trust on its production revenue for the year that may reasonably be considered to relate to the designated amount shall be deemed to have been paid by the taxpayer on account of the tax payable under this Part by the taxpayer on the production revenue of the taxpayer for the taxpayer’s taxation year in which the taxation year of the trust ended.

(7) [Repealed, R.S., 1985, c. 2 (2nd Supp.), s. 3]

(8) For the purposes of computing the income of a taxpayer for a taxation year from a source referred to in paragraph (1)(a) or (b),

(a) subject to subsection (9), there shall be deducted in respect of a particular prescribed project, the amount equal to the lesser of

(i) the production revenue of the taxpayer for the year that may reasonably be attributable to the production after December 31, 1982 of petroleum or gas or the processing after December 31, 1982 of petroleum to any stage that is not beyond the stage of crude oil or its equivalent from a prescribed reservoir in which the project is located, computed on the assumption that for the year the taxpayer was allowed no deductions under paragraph (2)(e) or this paragraph, and

(ii) the cumulative enhanced recovery capital expense of the taxpayer at the end of the year in respect of the project; and

(b) there shall be included, in respect of a particular prescribed project, the amount, if any, by which

(i) the aggregate of all amounts referred to in paragraphs 6(2)(e) to (k) that would be taken into account in computing the taxpayer’s cumulative enhanced recovery capital expense at the end of the year in respect of the project

exceeds

(ii) the aggregate of all amounts referred to in paragraphs 6(2)(a) to (d) that would be taken into account in computing the taxpayer’s cumulative enhanced recovery capital expense at the end of the year in respect of the project.

(9) Where all taxpayers who

(a) have made or incurred prescribed exploration and development expenses,

(b) have acquired prescribed enhanced recovery equipment, or

(c) are obligated to make or incur prescribed exploration and development expenses or to acquire prescribed enhanced recovery equipment,

in respect of a prescribed project, jointly make a valid election not to make any deductions under paragraph (8)(a) in respect of the project, deductions shall not be made under that paragraph in respect of the project in computing the income of any taxpayer for any taxation year.

(10) An election referred to in subsection (9) in respect of a prescribed project is not valid unless it is made in prescribed form and is filed with the Minister on or before the earliest day on or before which any taxpayer who is required to join in the election is required under section 11 to file a return of production revenue for the taxation year in which the taxpayer first

(a) makes or incurs a prescribed exploration and development expense, or

(b) acquires prescribed enhanced recovery equipment,

in respect of the project.

(11) Where an election in respect of a prescribed project is filed in accordance with subsection (10), any taxpayer who at any time thereafter

(a) makes or incurs prescribed exploration and development expenses, or

(b) acquires prescribed enhanced recovery equipment,

in respect of the project shall be deemed to have joined in the election and is bound by it.

(12) Where, in the opinion of the Minister, the circumstances of a case are such that it would be just and equitable to permit an election to be filed under subsection (10) after the day on or before which it is required by that subsection to be filed, the Minister may permit the election to be filed after that day and, where the election is filed pursuant to the permission, the election shall be deemed to have been filed on the day on or before which it is required to be filed.

R.S., 1985, c. P-12, s. 5; R.S., 1985, c. 2 (2nd Supp.), s. 3, c. 45 (2nd Supp.), s. 2.

6. (1) In this section, “proceeds of disposition” has, subject to subsection (4), the same meaning as in section 13 of the Income Tax Act.

(2) For the purposes of subsection 5(8), “cumulative enhanced recovery capital expense” of a taxpayer in respect of a particular prescribed project at any time in a taxation year means the amount, if any, by which the aggregate of

(a) the aggregate of all prescribed exploration and development expenses made or incurred by the taxpayer after 1982, before October 1986 and before that time in respect of the project,

(b) the amount by which the capital cost to the taxpayer of each property that is prescribed enhanced recovery equipment acquired by the taxpayer after 1982, before October 1986 and before that time for use in the project exceeds any amount included therein that is in respect of financing,

(c) the aggregate of all amounts in respect of the project required by paragraph 5(8)(b) to be included in computing the taxpayer’s production revenue for his taxation years ending before that time, and

(d) any amount referred to in paragraph (f), (g) or (h) that is established by the taxpayer to have become a bad debt before October 1986 and before that time

exceeds the aggregate of all amounts each of which is

(e) any amount deductible by the taxpayer under paragraph 5(8)(a) for a taxation year ending before that time in respect of the project,

(f) any amount that became receivable by the taxpayer before that time, as a result of a transaction that occurred after 1982 and before October 1986 for which the consideration given by the taxpayer was property, other than a share or Canadian resource property or an interest therein or a right thereto, or services, the original cost of which to the taxpayer may reasonably be regarded as having been an expense referred to in paragraph (a) in respect of the project,

(g) any amount that is, in respect of a disposition before October 1986 and before that time of a property referred to in paragraph (b), the lesser of

(i) the proceeds of disposition of the property minus any outlays and expenses to the extent that they were made or incurred by the taxpayer for the purpose of making the disposition, and

(ii) the amount by which the capital cost to the taxpayer of the property exceeds any amount that is included therein that is in respect of financing,

(h) any amount that became receivable by the taxpayer after 1982, before October 1986 and before that time, in respect of an expense referred to in paragraph (a) in respect of the project, from another person pursuant to an agreement between the taxpayer and that other person to unitize the field in which the project is located,

(i) any amount received before October 1986 and before that time on account of any amount referred to in paragraph (d),

(j) any amount of assistance or benefit that the taxpayer has received or is entitled to receive before that time in respect of any expense referred to in paragraph (a) in respect of the project, whether the amount is by way of grant, subsidy, rebate, forgivable loan, deduction from royalty or tax, rebate of royalty or tax, investment allowance or any other form of assistance or benefit, or

(k) any amount of assistance or benefit that the taxpayer has received or is entitled to receive before that time in respect of the cost of property referred to in paragraph (b) in respect of the project, whether the amount is by way of grant, subsidy, rebate, forgivable loan, deduction from royalty or tax, rebate of royalty or tax, investment allowance or any other form of assistance or benefit, to the extent that the amount has not been deducted in determining the capital cost of the property.

(3) For the purposes of subsection (2), where a taxpayer was a member of a partnership at the end of a fiscal period of the partnership,

(a) any property acquired or disposed of by the partnership shall be deemed to have been acquired or disposed of by the taxpayer to the extent of his share thereof;

(b) any property deemed by paragraph (a) to have been acquired or disposed of by the taxpayer shall be deemed to have been acquired or disposed of by him on the day the property was acquired or disposed of by the partnership;

(c) if the partnership has received, or is entitled to receive, an amount referred to in paragraph (2)(j) or (k), the taxpayer shall be deemed to have received, or to be entitled to receive, the amount to the extent of his share thereof, on the day the partnership received, or is entitled to receive, the amount;

(d) any expenditure incurred or expense recovered by the partnership shall be deemed to have been incurred or recovered, as the case may be, by the taxpayer to the extent of his share thereof;

(e) any expenditure or expense deemed by paragraph (d) to have been incurred or recovered, as the case may be, by the taxpayer shall be deemed to have been incurred or recovered by him on the day the expenditure was incurred or the expense was recovered by the partnership;

(f) if an amount referred to in paragraph (2)(f) or (h) has become receivable by the partnership, the amount shall be deemed to have become receivable by the taxpayer, to the extent of his share thereof, on the day the amount became receivable by the partnership;

(g) any amount referred to in paragraph (2)(f), (g) or (h) in respect of the partnership that is established by the partnership to have become a bad debt before a particular time shall be deemed to have become an amount referred to in that paragraph that was established by the taxpayer to have become a bad debt before the particular time to the extent of his share thereof; and

(h) any amount referred to in paragraph (2)(i) received by the partnership shall be deemed to be an amount referred to in that paragraph received by the taxpayer at the time it was received by the partnership to the extent of the taxpayer’s share thereof.

(4) For the purposes of subsection (2), where a taxpayer disposes of a property referred to in paragraph (2)(b), his proceeds of disposition shall be deemed to be the greater of

(a) his actual proceeds of disposition, and

(b) the fair market value of the property.

(5) For the purposes of subsection (6),

“former corporation” means, in respect of

(a) an amalgamation of corporations, a "predecessor corporation" described in subsection 87(1) of the Income Tax Act, or

(b) a winding-up of a corporation, a "subsidiary" described in subsection 88(1) of the Income Tax Act;

“successor corporation” means, in respect of

(a) an amalgamation of corporations, a "new corporation" described in subsection 87(1) of the Income Tax Act, or

(b) a winding-up of a corporation, a "parent" described in subsection 88(1) of the Income Tax Act.

(6) Notwithstanding subsection (4), where at a particular time after December 31, 1982 there is an amalgamation of corporations within the meaning of subsection 87(1) of the Income Tax Act or a winding-up of a corporation as described in subsection 88(1) of that Act, the following rules apply for the purposes of subsection 5(8) and this section in respect of the successor corporation after the particular time:

(a) any prescribed exploration and development expense made or incurred by a former corporation shall be deemed to be a prescribed exploration and development expense made or incurred by the successor corporation at the time when the expense was made or incurred by the former corporation;

(b) any prescribed enhanced recovery equipment acquired by a former corporation shall be deemed to have been acquired by the successor corporation at the time when it was acquired by the former corporation, and that property shall be deemed to be prescribed enhanced recovery equipment acquired by the successor corporation at a capital cost to it equal to the capital cost of the property to the former corporation;

(c) any amount in respect of a particular prescribed project required by paragraph 5(8)(b) to be included in computing a former corporation’s production revenue for a taxation year of the former corporation shall be deemed to have been an amount in respect of the project required by paragraph 5(8)(b) to be included in computing the successor corporation’s production revenue for a taxation year of the successor corporation ending before the particular time;

(d) any amount referred to in paragraph (2)(f), (g) or (h) in respect of a former corporation that was established by a former corporation to have become a bad debt before the particular time shall be deemed to have been an amount referred to in that paragraph that was established by the successor corporation to have become a bad debt before the particular time;

(e) any amount in respect of a particular prescribed project that was deductible by a former corporation under paragraph 5(8)(a) for a taxation year of the former corporation shall be deemed to be an amount deductible in respect of the project by the successor corporation under paragraph 5(8)(a) for a taxation year of the successor corporation ending before the particular time;

(f) any amount referred to in paragraph (2)(f) or (h) in respect of a particular prescribed project that became receivable by a former corporation shall be deemed to be an amount referred to in that paragraph in respect of the project that became receivable by the successor corporation before the particular time;

(g) any amount referred to in paragraph (2)(g) in respect of a disposition by a former corporation shall be deemed to be an amount referred to in that paragraph in respect of a disposition by the successor corporation before the particular time;

(h) any amount referred to in paragraph (2)(i) received by a former corporation shall be deemed to be an amount referred to in that paragraph received by the successor corporation before the particular time;

(i) any amount of assistance or benefit referred to in paragraph (2)(j) or (k) that a former corporation has received or was entitled to receive shall be deemed to be an amount of assistance or benefit referred to in that paragraph that the successor corporation received or was entitled to receive before the particular time; and

(j) the successor corporation shall be deemed to have been in existence throughout the period in which the former corporation was in existence.

(7) For the purposes of this section, any transaction or event entitling a taxpayer to proceeds of disposition of property shall be deemed to be a disposition of that property by the taxpayer.

R.S., 1985, c. P-12, s. 6; R.S., 1985, c. 45 (2nd Supp.), s. 3.

7. (1) Income or loss from a source described in section 5 does not include

(a) income or loss from transporting or transmitting petroleum or refining crude oil or its equivalent;

(b) income or loss from transporting, transmitting or processing gas, other than treating gas to remove water and other impurities;

(c) any amount on which tax under Part II is required to be deducted or withheld that is a resource royalty or that is a production royalty received after December 31, 1983;

(d) any amount required by section 13 of the Income Tax Act to be included in computing the taxpayer’s income for the year;

(e) with respect to

(i) Her Majesty in right of Canada or a province,

(ii) an agent of Her Majesty in right of Canada or a province, or

(iii) a corporation, commission or association, (other than a prescribed person), that is controlled directly or indirectly in any manner whatever by Her Majesty in right of Canada or a province or by an agent of Her Majesty in either right,

a royalty, tax, lease rental or bonus received or receivable by a person described in subparagraph (i), (ii) or (iii) by virtue of an obligation imposed by statute or a contractual obligation substituted for an obligation imposed by statute;

(f) income or loss from the production of petroleum or gas from a prescribed oil or gas well;

(g) income or loss from the new deep production of petroleum or gas from a deepened well, other than a well located in a prescribed project or an approved recovery project;

(h) the portion of the income or loss that may reasonably be attributed to the production in a period after March 31, 1985 of petroleum or gas from an approved recovery project that is the exempt percentage of that income or loss for that period in respect of that project;

(i) the portion of the amount received or receivable as a production royalty or resource royalty, computed by reference to the amount or value of production in a period after 1985 of petroleum or gas from an approved recovery project, that is the exempt percentage of that amount for that period in respect of that project;

(j) an amount received or receivable as a production royalty or resource royalty computed by reference to the amount or value of production of petroleum or gas after 1985 from a prescribed oil or gas well; or

(k) the portion of the amount received or receivable as a production royalty or resource royalty, computed by reference to the amount or value of production after 1985 of petroleum or gas from a deepened well, other than a well located in a prescribed project or an approved recovery project, that is attributable to the new deep production from the well.

(2) For the purposes of

(a) the approval referred to in the definition "exempt percentage" in subsection 2(1), and

(b) paragraphs (1)(h) and (i) and 26(10)(a),

where a particular prescribed project that is an approved recovery project referred to in paragraph (b) of the definition "approved recovery project" in subsection 2(1) includes any other project that, but for the existence of the particular project, would be a separate prescribed project, each such project shall be deemed to be a separate approved recovery project and income or loss from each such separate approved recovery project shall not include income or loss from the production of petroleum or gas not attributable to that separate project.

R.S., 1985, c. P-12, s. 7; R.S., 1985, c. 2 (2nd Supp.), s. 4.

8. [Repealed, R.S., 1985, c. 2 (2nd Supp.), s. 5]

9. (1) The tax payable under this Part in respect of a taxpayer for a taxation year,

(a) where the taxation year ends in 1986, is the aggregate of

(i) the aggregate of

(A) 16% of the lesser of

(I) that portion of the production revenue of the taxpayer for the year that may reasonably be attributed to a period in the year before 1986, and

(II) the production revenue of the taxpayer for the year, and

(B) 13.33% of the amount, if any, by which the production revenue of the taxpayer for the year exceeds the aggregate of

(I) the lesser of the amounts determined under subclauses (A)(I) and (II), and

(II) that portion of the synthetic production revenue of the taxpayer for the year that may reasonably be attributed to a period in the year after 1985, and

(ii) 12% of the lesser of

(A) the amount determined under subclause (i)(B)(II), and

(B) the production revenue of the taxpayer for the year; and

(b) where the taxation year ends after 1986, is the aggregate of

(i) 13.33% of the lesser of

(A) the amount, if any, by which the production revenue of the taxpayer for the year exceeds the synthetic production revenue of the taxpayer for the year, and

(B) the production revenue of the taxpayer for the year, and

(ii) 12% of the lesser of

(A) the amount, if any, by which the production revenue of the taxpayer for the year exceeds the lesser of the amounts determined under clauses (i)(A) and (B), and

(B) the synthetic production revenue of the taxpayer for the year.

(c) and (d) [Repealed, R.S., 1985, c. 45 (2nd Supp.), s. 4]

(2) Where the production revenue of a taxpayer for a taxation year includes a share of a partnership’s production revenue and

(a) the tax that would be payable under subsection (1) by the partnership on an amount equal to that share if the partnership were a person and its fiscal period were its taxation year,

exceeds

(b) the tax that would, but for this subsection, be payable under subsection (1) by the taxpayer for that taxation year of the taxpayer computed on the assumption that he had no income other than that share and was allowed no deduction under subsection 5(3.2) for the year,

the excess shall be added to the tax otherwise payable by the taxpayer under this Part for the year.

(3) Where a corporation has included an amount in computing its production revenue for a taxation year by virtue of subsection 5(5) or (5.1) and

(a) the tax that the corporation is deemed by subsection 5(6) to have paid for the year in respect of that amount,

exceeds

(b) the tax that would, but for this subsection, be payable by the corporation for the year under subsection (1), computed on the assumption that the corporation had no income other than that amount,

the excess shall be added to the tax otherwise payable by the corporation under this Part for the year.

(4) [Repealed, R.S., 1985, c. 2 (2nd Supp.), s. 6]

(5) There may be deducted from the tax otherwise payable by a taxpayer on his production revenue for a taxation year, an amount not exceeding the exploration and development expense tax credit of that taxpayer at the end of the year.

(6) For the purposes of this section, “exploration and development expense tax credit” of a taxpayer at the end of a taxation year means the amount, if any, by which

(a) the aggregate of all amounts each of which is an amount that the taxpayer

(i) would have been eligible to receive in respect of outlays or expenses made or incurred by him before the end of the taxation year under a prescribed program of the Government of Canada or of a province providing incentives for the exploration for and development of petroleum and gas in Canada, and

(ii) has waived his entitlement to receive, in accordance with the applicable provisions of that program, on or before the date he is required to file a return of production revenue pursuant to section 11 for the taxation year

exceeds

(b) the aggregate of all amounts, if any, each of which was an amount deducted under subsection (5) from the tax payable under this Part by the taxpayer for any preceding taxation year.

(7) Where after 1980 there has been an amalgamation within the meaning of subsection 87(1) of the Income Tax Act and one or more of the predecessor corporations referred to in that subsection had an exploration and development expense tax credit, for the purposes only of determining the exploration and development expense tax credit of the new corporation referred to in that subsection, the new corporation shall be deemed to be the same corporation as, and a continuation of, each such predecessor corporation.

(8) Where after 1980 there has been a winding-up described in subsection 88(1) of the Income Tax Act and the subsidiary referred to in that subsection had an exploration and development expense tax credit, for the purposes only of determining the exploration and development expense tax credit of the parent referred to in that subsection, the parent shall be deemed to be the same corporation as, and a continuation of, the subsidiary.

(9) Where the exploration and development expense tax credit of a taxpayer at the end of a taxation year exceeds the amount deducted under subsection (5) from the tax payable under this Part by him for the year, the taxpayer may, by filing an election in prescribed form with the Minister within three years after the end of the year, elect to have this subsection apply to the taxpayer for the year in respect of the amount, not exceeding the excess, set out in the election and, in that case, the following rules apply:

(a) the taxpayer shall be deemed to have paid, on the day the election is filed with the Minister, the amount set out in the election on account of the taxpayer’s tax payable under this Part for the year; and

(b) for the purpose of computing the taxpayer’s exploration and development expense tax credit at the end of any subsequent taxation year, the amount set out in the election shall be deemed to have been deducted under subsection (5) from the tax payable under this Part by the taxpayer for the year for which the election was filed.

(10) Where a taxpayer has made an election under subsection (9) for a taxation year, the taxpayer shall not make another election under that subsection for that year.

R.S., 1985, c. P-12, s. 9; R.S., 1985, c. 2 (2nd Supp.), s. 6, c. 45 (2nd Supp.), s. 4.

10. (1) Where a taxpayer is a corporation, there may be deducted from the tax otherwise payable (computed without reference to subsections (7) and 9(5)) by it on its production revenue for a taxation year, an amount equal to the aggregate of

(a) the lesser of

(i) the tax that would otherwise be payable by the corporation under this Part on its production revenue for the year if the reference to "production revenue" in section 9 were read as "eligible production revenue", and

(ii) the corporation’s credit limit for the taxation year,

(b) in respect of the taxation year of the corporation that ends in 1985, the lesser of

(i) the amount of tax determined under subparagraph (a)(i) for the year that may reasonably be attributed to the eligible production revenue for the period in the year commencing after December 31, 1984, and

(ii) that proportion of the corporation’s allocated limit for the year that the number of days after December 31, 1984 in the year is of three hundred and sixty-five, and

(c) in respect of the taxation years of the corporation that end after 1985, the least of

(i) the amount of tax determined under subparagraph (a)(i) for the year on that portion of its eligible production revenue for the year that may reasonably be attributed to production in the period in the year commencing May 1, 1986,

(ii) three times that proportion of the corporation’s allocated limit for the year that the number of days after April 1986 and before October 1986 in the year is of three hundred and sixty-five, and

(iii) the amount, if any, by which the tax determined under subparagraph (a)(i) for the year exceeds the amount determined under paragraph (a) for the year.

(2) For the purposes of subsection (1), the “credit limit” of a corporation for a taxation year is that proportion of the corporation’s allocated limit for the year that the number of days before October 1986 in the year is of three hundred and sixty-five.

(3) For the purposes of subsections (1) and (2), the “allocated limit” of a corporation for a taxation year in which the corporation

(a) is not associated with one or more other corporations, is

(i) two hundred and fifty thousand dollars where the year ends before 1986, or

(ii) five hundred thousand dollars where the year ends after 1985; and

(b) is associated with one or more other corporations, is the amount allocated to the corporation under subsection (4) or (5).

(4) The corporations in a group that, in a taxation year, are associated with each other may file with the Minister in prescribed form an agreement whereby, for the purpose of this section, they allocate an amount to one or more of them for the year, which amount or the aggregate of which amounts, as the case may be, is

(a) two hundred and fifty thousand dollars for the year ending before 1986; or

(b) five hundred thousand dollars for the year ending after 1985.

(5) If any of the corporations in a group referred to in subsection (4) fails to file with the Minister an agreement as contemplated by that subsection within thirty days after notice in writing by the Minister has been forwarded to any of them that such an agreement is required for the purpose of any assessment of tax for a taxation year under this Part, the Minister shall, for the purpose of this section, allocate an amount to one or more of them for the year, which amount or the aggregate of which amounts, as the case may be, is an amount referred to in paragraph (4)(a) or (b), as the case may be.

(6) For the purposes of this section, the “eligible production revenue” of a corporation for a taxation year is the aggregate of all amounts each of which is

(a) the amount that would be the production revenue for the year of the corporation, other than an amount, if any, included therein by virtue of subsection 5(5) or (5.1) or by virtue of the corporation being a member of a partnership, that may reasonably be attributed to the period in the year commencing after May 31, 1982, if

(i) subsection 5(1) were read without reference to paragraph (c) thereof,

(ii) the reference in paragraph 5(1)(d) to "paragraph (a), (b) or (c)" were read as a reference to "paragraph (a) or (b)", and

(iii) the reference to "a production royalty" in paragraph 5(1)(f) were read as a reference to "production royalty in respect of production of petroleum or gas of the corporation";

(b) the amount that would be the production revenue included in the income for the year of the corporation by virtue of the corporation being a member of a partnership that may reasonably be attributed to the period in the year commencing after the later of May 31, 1982 and the date the corporation first became a member of the partnership, if

(i) subsection 5(1) were read without reference to paragraph (c) thereof,

(ii) the reference in paragraph 5(1)(d) to "paragraph (a), (b) or (c)" were read as a reference to "paragraph (a) or (b)", and

(iii) the reference to "a production royalty" in paragraph 5(1)(f) were read as a reference to "production royalty in respect of production of petroleum or gas of the partnership";

(c) the amount that is deemed by subsection 5(5) to be production revenue of the corporation for the year; or

(d) the lesser of

(i) the amount by which the production revenue of the corporation for the year exceeds the aggregate of the amounts determined under paragraphs (a) to (c) in respect of the corporation for the year, and

(ii) its royalty exemption limit for the year.

(6.1) For the purposes of subparagraph 10(6)(d)(ii), the royalty exemption limit of a corporation for a taxation year is that proportion of the corporation’s allocated exemption limit for the year that the number of days after 1985 and before October 1986 in the year is of three hundred and sixty-five.

(6.2) For the purposes of subsection (6.1), the allocated exemption limit of a corporation for a taxation year is

(a) $2,000,000, where the corporation is not associated in the year with one or more other corporations; or

(b) the amount allocated to the corporation under subsection (6.3) or (6.4), where the corporation is associated in the year with one or more other corporations.

(6.3) The corporations in a group that, in a taxation year, are associated with each other may file with the Minister in prescribed form an agreement whereby, for the purpose of paragraph (6.2)(b), they allocate an amount to one or more of them for the year, which amount or the aggregate of which amounts, as the case may be, is $2,000,000.

(6.4) If any of the corporations in a group referred to in subsection (6.3) fails to file with the Minister an agreement, as contemplated by that subsection, within thirty days after notice in writing by the Minister has been forwarded to any of them that such an agreement is required for the purpose of any assessment of tax for a taxation year under this Part, the Minister shall, for the purpose of paragraph (6.2)(b), allocate an amount to one or more of them for the year, which amount or the aggregate of which amounts, as the case may be, is $2,000,000.

(7) Where a taxpayer is a corporation, there may be deducted from the tax otherwise payable (computed without reference to subsection 9(5)) by it on its production revenue for a taxation year, an amount not exceeding 30% of the aggregate of the amounts added in computing its cumulative offset account within the meaning of subsection 66.5(2) of the Income Tax Act in the year pursuant to subsections 66(14.1) and (14.2) of that Act.

R.S., 1985, c. P-12, s. 10; R.S., 1985, c. 2 (2nd Supp.), s. 7, c. 45 (2nd Supp.), s. 5.

11. (1) A return of production revenue for each taxation year for which a tax under this Part is payable shall, without notice or demand therefor, be filed with the Minister in prescribed form containing prescribed information,

(a) in the case of a corporation, commission or association, by it or on its behalf within six months from the end of the year;

(b) in the case of an individual who has died without making the return, by the legal representative of that individual within six months from the day of death;

(c) in the case of an estate or trust, by the trustee or legal representative of the estate or trust within ninety days from the end of the year;

(d) in the case of any other person, by that person on or before the last day of April in the next year or, if he is unable for any reason to file the return, by the guardian, curator, tutor, committee or other legal representative of that person on or before that day; or

(e) where no person described in any of paragraphs (a) to (d) has filed the return, by such person as is required by notice in writing from the Minister to file the return, within such reasonable time as the notice specifies.

(2) Whether or not he is liable to pay tax under this Part for a taxation year and whether or not a return has been filed under subsection (1) or (3), every person shall, on demand from the Minister, served personally or by registered letter, file, within such reasonable time as may be stipulated therein, with the Minister in prescribed form and containing prescribed information a return of the production revenue for the taxation year designated in the demand.

(3) Every trustee in bankruptcy, assignee, liquidator, curator, receiver, trustee or committee and every agent or other person administering, managing, winding-up, controlling or otherwise dealing with the property, business, estate or income of a person who has not filed a return for a taxation year as required by this section shall file a return in prescribed form of the production revenue of that person for that year.

(4) [Repealed, R.S., 1985, c. 2 (2nd Supp.), s. 8]

R.S., 1985, c. P-12, s. 11; R.S., 1985, c. 2 (2nd Supp.), s. 8.

12. Every person required by section 11 to file a return of production revenue shall, in the return, estimate the amount of tax payable.

1980-81-82-83, c. 68, s. 86.

13. (1) The Minister shall, with all due dispatch, examine a taxpayer’s return of production revenue for a taxation year and assess the tax for the year and the interest and penalties, if any, payable.

(2) After examination of a return of production revenue, the Minister shall send a notice of assessment to the person by whom the return was filed.

(3) Liability for the tax payable under this Part is not affected by an incorrect or incomplete assessment or by the fact that no assessment has been made.

(4) The Minister may at any time assess tax, interest or penalties under this Part or notify in writing any person by whom a return of production revenue for a taxation year has been filed that no tax is payable for the taxation year, and may

(a) at any time, if the taxpayer or person filing the return

(i) has made any misrepresentation that is attributable to negligence, carelessness or wilful default or has committed any fraud in filing the return or in supplying any information under this Part, or

(ii) has filed with the Minister a waiver in prescribed form within four years from the day of mailing of a notice of an original assessment or of a notification that no tax is payable for a taxation year, and

(b) within four years from the day referred to in subparagraph (a)(ii), in any other case,

reassess or make additional assessments, or assess tax, interest or penalties under this Part, as the circumstances require.

(4.1) Where the Minister would, but for this subsection, be entitled to reassess, make an additional assessment or assess tax, interest or penalties by virtue only of the filing of a waiver under subparagraph (4)(a)(ii), the Minister may not make such reassessment, additional assessment or assessment after the day that is six months after the date on which a notice of revocation of the waiver in prescribed form is filed.

(5) Notwithstanding subsection (4), there shall not be included in computing the production revenue of a taxpayer, for the purposes of any reassessment, additional assessment or assessment of tax, interest or penalties under this Part that is made after the expiration of four years from the day referred to in subparagraph (4)(a)(ii),

(a) any amount that was not included in computing the production revenue of the taxpayer for the purposes of an assessment of tax under this Part made before the expiration of four years from that day;

(b) any amount in respect of which the taxpayer establishes that the failure so to include it did not result from any misrepresentation that is attributable to negligence, carelessness or wilful default or from any fraud in filing a return of his production revenue or supplying any information under this Part; and

(c) where any waiver has been filed with the Minister, in the form and within the time referred to in subsection (4), with respect to a taxation year to which the reassessment, additional assessment or assessment of tax, interest or penalties, as the case may be, relates, any amount that the taxpayer establishes cannot reasonably be regarded as relating to a matter specified in the waiver.

(6) The Minister is not bound by a return or information supplied by or on behalf of a taxpayer and, in making an assessment, may, notwithstanding a return or information so supplied or if no return has been filed, assess the tax payable under this Part.

(7) An assessment shall, subject to being varied or vacated on an objection or appeal under this Part and subject to a reassessment, be deemed to be valid and binding notwithstanding any error, defect or omission therein or in any proceeding under this Act relating thereto.

R.S., 1985, c. P-12, s. 13; R.S., 1985, c. 2 (2nd Supp.), s. 9, c. 45 (2nd Supp.), s. 6.