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Petroleum and Gas Revenue Tax Act (R.S.C., 1985, c. P-12)

Act current to 2022-07-13 and last amended on 2005-12-12. Previous Versions

PART IRevenue Tax

Tax and Computation

Marginal note:Tax payable

 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

Marginal note:Production revenue defined

  •  (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.

  • Marginal note:Rules for calculating income

    (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”.

  • Marginal note:Deduction for synthetic production

    (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.

  • Marginal note:Deduction of royalties

    (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.

  • Marginal note:Idem

    (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.

  • Marginal note:Individual deduction

    (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.

  • Marginal note:Royalties re production before 1982

    (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.

  • Marginal note:Corporation as beneficiary under a trust

    (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.

  • Marginal note:Taxpayer as beneficiary under trust

    (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.

  • Marginal note:Non-application of subsection (5.1)

    (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.

  • Marginal note:Presumption of payment of tax

    (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]

  • Marginal note:Income deductions and inclusions

    (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.

  • Marginal note:Election respecting deductions

    (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.

  • Marginal note:Filing of election

    (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.

  • Marginal note:Election binding on all interests

    (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.

  • Marginal note:Late-filed request

    (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

Marginal note:Definition of “proceeds of disposition”

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

  • Marginal note:Definition of “cumulative enhanced recovery capital expense”

    (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.

  • Marginal note:Where taxpayer member of partnership

    (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.

  • Marginal note:Proceeds of disposition of property

    (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.

  • Marginal note:Interpretation

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

    former corporation

    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; (personne morale remplacée)

    successor corporation

    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. (personne morale remplaçante)

  • Marginal note:Rules where amalgamation or winding-up

    (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.

  • Marginal note:Deemed disposition

    (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
 
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