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Ottawa, July 23, 1999
1999-067

Clarifying Amendments Regarding Tax Treatment of Resource Expenditures

Related document:

• Detailed Information Clarifying Tax Treatment of Resource Expenditures -- Draft Amendments to the Income Tax Act and the Income Tax Regulations and Explanatory Notes.

Finance Minister Paul Martin today released proposed amendments regarding the tax treatment of certain resource expenditures.

The proposed amendments are designed to deal with two related issues. First, they would ensure that taxpayers cannot obtain unintended tax relief by reclassifying certain Canadian development expenses (CDE), which qualify for a 30-per-cent annual write-off, as Canadian exploration expenses (CEE) qualifying for full deductibility in the year in which they were incurred. Second, these changes would prevent the reclassification, as CDE or CEE, of expenditures that have consistently been treated by taxpayers in the resource sector as relating to depreciable property, the cost of which is deducted as capital cost allowance (CCA) within the limits specified in the Income Tax Act.

Allowing these expenditures to be reclassified would result in a windfall for taxpayers. The windfall is due to the 100 per cent rate of write-off for CEE, as opposed to lower rates of write-offs for CDE and CCA. In the case of the reclassification of depreciable property, an additional unintended benefit would occur because, unlike CCA claims, CEE and CDE claims do not result in a reduction of the resource allowance deduction available to taxpayers in the resource sector.

The proposed amendments are intended to clarify the policy underlying the income tax law. Any necessary action will be taken to ensure that the right of parties involved in outstanding court cases to make arguments on the basis of the existing income tax law is not affected. However, the changes would prevent other taxpayers from seeking to benefit from the perceived deficiency in the existing law.

More detailed information on the proposed amendments is contained in the attached draft legislation and explanatory notes.

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