Prime Minister Justin Trudeau recently delivered a "Mandate
Letter" to the new Minister of Finance, Bill Morneau, that
summarized the Prime Minister's policy goals and included a
lengthy listing of priorities to be pursued by the Finance
Minister.
Of notable interest to those that operate in the Canadian natural
resources sector, the Prime Minister's list of priorities
included the following statement:
Develop proposals to allow a Canadian Exploration Expenses tax
deduction only in cases of unsuccessful exploration and re-direct
any savings to investments in new and clean technologies.
The Prime Minister's statement appears to be related to the
pledge made by the new Government during the recent federal
election campaign to "phase out subsidies for the fossil fuel
industry" by limiting Canadian Exploration Expense tax
deductions to the deduction of expenses incurred in the course of
"unsuccessful exploration".
While it has been speculated that the contemplated restrictions
will focus only on oil and gas exploration, no details have been
released on how the ability to claim Canadian Exploration Expenses
may be limited. Of particular significance, it is unclear how any
future-oriented limitations may be reconciled with the provisions
of the Income Tax Act that permit the current renunciation
of Canadian Exploration Expenses to qualifying subscribers of
flow-through shares.
Members of the natural resources sector, particularly those
actively involved in oil and gas exploration activities, would be
well advised to closely monitor the development of this new
governmental policy and any resulting legislative proposals.
The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.
© McMillan LLP 2015
