Transporting crude to shuttle tankers could be considered integral part of production

Tax- Income tax- Business and property income

H Corp. operated offshore oilfield. Offshore loading system (OLS) was network of lines that offloaded oil from platform onto large shuttle tankers two kilometers away. EMCHC Ltd. explored and produced petroleum, natural gas and other hydrocarbons. EMCHC Ltd. was wholly owned subsidiary of E Co. which was wholly owned subsidiary of EMC Ltd.. EMC Ltd. and E Co. were partners with EMC Ltd. owning sixty per cent of partnership. Partnership and EMCHC Ltd. were parties to joint venture contract with their participation equalling 28.125 per cent and 5 per cent respectively. During 2005 taxation year, H Corp. further developed reservoir connectivity analysis (RCA) and EMCHC Ltd. claimed that certain work for RCA resulted in scientific and technological advancements. Minister of National Revenue accepted claims for 2005 taxation year. Minister reclassified $3,674,626 of resource revenue reported by partnership to non-resource revenue and reassessed EMC Ltd.’s 2000 taxation year accordingly. Minister reassessed EMCHC Ltd.’s 2005 taxation year, reclassifying $530,138 of its revenue as non-resource revenue. EMC Ltd. and EMCHC Ltd. appealed. Appeals in respect of resource allowance issue allowed. Section 1204(1) of Income Tax Regulations defines “gross resource profits”. Transporting or transmitting of crude from base structure to shuttle tankers was sufficiently connected with marketing of crude to be considered integral part of production of crude for purposes of s. 1204(1)(b) of Regulations. Only income realized by joint venture owners from production of crude was income from sale of crude to refineries. OLS had no impact on amount of income realized by joint venture owners from sale of crude and did not generate any income or loss for joint venture owners. There was no income derived from transporting or transmitting petroleum to which s. 1204(3)(a) might be applied.

Exxonmobil Canada Ltd. v. The Queen (2019), 2019 CarswellNat 1674, 2019 TCC 108, John R. Owen J. (T.C.C. [General Procedure]).

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