Many of the definitions in this glossary are based on text found in the Income Tax Act or Income Tax Regulations. You will find the references for these definitions in square brackets. The other definitions are based on common usage.
To find a term, select one of the letters below, or use your browser and select "Edit", then "Find."
Accumulation of petroleum or natural gas - generally considered to mean a pool of hydrocarbons.
Agreement - see Flow-through share agreement.
Canadian development expense (CDE) [Ss. 66.2(5) Definitions] - includes certain expenses for the development of an oil or gas well in Canada, or of a mine in a mineral resource in Canada.
Canadian exploration expense (CEE) [Ss. 66.1(6) Definitions] - includes certain expenses incurred to determine the existence, location, extent, or quality of a mineral resource or of an accumulation of petroleum or natural gas in Canada. In addition, certain expenses incurred to bring into production a natural accumulation of petroleum or natural gas in Canada, or a new mine in a mineral resource in Canada may also qualify as CEE.
The definition of CEE also includes Canadian renewable and conservation expenses (CRCE).
Canadian exploration and development overhead expense (CEDOE) [Reg. 1206(1) and (4.2)] - a CEE (excluding CRCE) or a CDE incurred in respect of:
- administration, management, or financing;
- salary, wages or other benefits of an employee whose duties are not all or substantially all for exploration and development;
- maintenance or rental of, or taxes or insurance on, property that is not all, or substantially all, used for exploration or development; or
- the use of property of, compensation for services of, or acquisition of materials, parts, or supplies from a person connected with the corporation such that the expense is more than the costs incurred by person in respect of such property, services, etc.
CEDOE are excluded from the resource expenses that may be renounced to investors.
Canadian renewable and conservation expense (CRCE) [Para. 66.1(6)(g.1) of the definition for CEE, Reg. 1219] - includes certain expenses incurred in respect of the development of a project for which it is reasonable to expect that at least half of the capital cost of the depreciable property to be used in the project will be the capital cost of property described in Class 43.1 or 43.2 of Schedule II of the Income Tax Regulations. See Canadian exploration expense.
Date of renunciation - the date that the renunciation is made. The date of renunciation is usually the earlier of:
- the signing date of the T101A Summary; and
- the date on which the earliest T101, Statement of Resource Expenses, was delivered to an investor.
This date is relevant to the issuer since it determines the deadline to file T101A forms without penalties. The CRA generally uses the certification date on the T101A Summary as the date of renunciation.
Deemed Canadian exploration expense (DCEE) [Ss. 66(12.601)] - permits up to $1 million per calendar year of certain specified Canadian development expenses (CDEs) incurred in the oil and gas sector by a principal-business corporation (PBC) whose taxable capital does not exceed $15 million to be renounced as Canadian exploration expenses (CEEs) to the investor.
Discovery of a natural accumulation - a new accumulation or reservoir. The provincial or territorial energy authority assigns a pooling code for each accumulation.
Effective date of renunciation [Ss. 66(12.6), 66(12.601), 66(12.61),
66(12.62), and 66(12.63)] - renounced expenses are considered to have been incurred on the effective date of renunciation by the person to whom they are renounced, and never to have been incurred by the corporation. The principal-business corporation (PBC) can choose an effective date of renunciation that allows an investor to claim resource expenses on a date that is earlier than the actual date of renunciation.
For example, if a PBC renounces amounts in March of Year 2 for expenses incurred in Year 1, the corporation may choose to have the effective date of renunciation occur on a date in Year 1, as long as the expenses were incurred on or before the effective date and after the investor and corporation entered into a written agreement. An exception to this requirement is provided in the look-back rule.
Flow-through share (FTS) [Ss. 66(15) Definitions] - a new share of capital stock of a principal-business corporation (PBC) that is not a prescribed share and that is issued to a person under a flow-through share agreement. An FTS includes the right of a person to have such a share issued. As such, a flow-through warrant (FTW) is considered an FTS.
Flow-through mining expenditure (FTME) [127(9) Definitions] - available at the rate of 15 per cent of qualifying expenditures to individual investors in respect of "grass roots" mining exploration expenses financed using flow-through shares. Grass roots exploration focuses on finding new resources, as opposed to delineating existing resources.
Flow-through share agreement [Ss. 66(12.6), 66(12.601), 66(12.62), and
66(15)] - a written agreement entered into between an investor (corporation, partnership, individual, or trust) and the principal-business corporation (PBC), under which the PBC agrees to incur Canadian exploration expenses (CEE) or Canadian development expenses (CDE), the total of which will not be less than the consideration paid to the corporation for the FTS, and to renounce to the investor amounts of CEE or CDE that are not more than the consideration. These qualifying expenditures must then be incurred within 24 months following the month in which the agreement was entered into.
The consideration to be received must either be stated in the agreement, or determinable within 60 days of the agreement date.
Flow-through warrant (FTW) - an option to acquire a flow-through share (FTS) which is a right to have such a share issued (other than a prescribed share). If consideration is received for the option, and the corporation agrees to incur eligible expenses and to renounce them, then the qualifying period starts on the agreement date for that consideration. When the option is exercised, the qualifying period for the exercise of the option starts on the date the option was exercised.
A "prescribed right" is defined in subsections 6202.1(1.1) and (2.1). These subsections ensure that restrictions on the type of shares that may qualify as flow-through shares currently found in subsections 6202.1(1) and (2) also apply to rights to acquire shares.
Grass roots mining expenses [Para. 66.1(6)(f) of the definition for CEE] - expenses incurred for the purpose of determining the existence, location, extent or quality of a mineral resource in Canada including the cost of prospecting, carrying out geological, geophysical, or geochemical surveys, drilling by rotary, diamond, percussion, or other methods, and trenching, digging test pits, and preliminary sampling.
Investment tax credit [Ss 127(9)] - a tax credit usually calculated as a fixed percentage of qualifying investments or expenditures.
Look-back rule [Ss. 66(12.66)] - allows a principal-business corporation (PBC) to renounce expenditures that it will incur in Year 2 with an effective date of renunciation of December 31 of Year 1. The date of renunciation must be before April of Year 2. If an amount is renounced under the look-back rule, the PBC will be liable to a tax under Part XII.6 of the Act for any amounts renounced but not incurred before the end of February of Year 2.
The look-back rule is only available where the FTS investor deals at arm's length with the PBC.
Mineral resource [Ss. 248(1)] - a deposit of base or precious metals, coal, bituminous sands, or oil shale. Also included is a mineral deposit from which the principal mineral extracted is ammonite gemstone, calcium chloride, diamond, gypsum, halite, kaolin, sylvite, or silica (where silica is extracted from sandstone or quartzite) for which the Minister of Natural Resources has certified that the main mineral extracted is an industrial mineral contained in a non-bedded deposit.
Option - a right to buy commodities or securities within an agreed period, at a fixed price, or to sell commodities or securities at an agreed price and time.
Preproduction development costs [Para. 66.1(6)(g) of the definition for CEE] - certain preproduction development costs of a new mine may be CEE. These costs are expenses incurred in and before bringing a new mine in a mineral resource in Canada into production in reasonable commercial quantities. This includes the cost of clearing, removing overburden and stripping, and sinking a mineshaft or constructing an adit or other underground entry.
flow-through share (FTS) represents genuine risk capital. A prescribed share is not an FTS.[Reg. 6202.1] - a new share issued by a PBC which has attributes or benefits not normally associated with a common share. Any arrangements or privileges designed to guarantee the investor a minimum return or guarantee the original investment will generally cause a share to become prescribed. The purpose of this exclusion is to ensure that a
Principal-business corporation (PBC) [Ss. 66(15) Definitions] - a corporation whose principal business is certain activities related to the oil and gas, mining, renewable energy, or energy conservation sectors. A holding company whose assets are composed of 90% or more of shares or indebtedness of a related PBC may also qualify as a PBC.
Prospectus - a legal document describing the security being offered for sale to the public. It must be prepared in conformity with requirements of the applicable provincial securities commission.
Qualifying period [Ss. 66(15) definition of flow-through share] - begins on the day the agreement was made and ends 24 months after the end of the month that includes that day.
Resource expense - refers to CEE (which includes CRCE), and CDE but excludes CEDOE that may have been included in CEE or CDE.
Right - a privilege granted to the holder of a security, such as the right to buy more shares of the issuer, or the right to exchange the security held for a different security.
Selling instrument [Ss. 66(15) Definitions] - for a flow-through share (FTS), means a prospectus, registration statement, offering memorandum, term sheet, or other similar document that describes the terms of the offer (including price and number of shares) by the principal-business corporation (PBC) to issue FTSs.
SITIN - an identification number assigned by the CRA when Form T100A, Application for a Selling Instrument T100 Identification Number (SITIN), is filed with a flow-through share agreement or selling instrument.
TIN - an identification number assigned by the CRA when Form T100C, Application for a T100 Identification Number (TIN) on the Exercise of Flow-Through Warrants (FTWs) and Details of the FTWs Exercised, is filed after FTWs are exercised. A TIN may also be issued in addition to a SITIN when FTS agreements are signed in different calendar years.
Warrant - a certificate that gives the owner the right to acquire newly issued shares.
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