Budget 2017: Changes To Canadian Exploration Expense And Flow-Through Shares

All references are to the Income Tax Act (Canada) (Act), unless otherwise noted.

Background

Canadian exploration expenses (CEE) are certain types of expenses incurred by oil and gas, mining and renewable energy corporations. CEE is 100 percent deductible in the year the expense is incurred. Certain types of CEE also qualify for renunciation to investors under the flow-through share rules contained in the Act. With the exception of expenses related to the acquisition of Canadian resource property (which generally would be a Canadian oil and gas property expense), most other oil and gas related expenses (other than tangible costs) qualify as Canadian development expenses (CDE). CDE is deductible at 30 percent on a declining balance basis. CDE can also be renounced under the flow-through share rules, but because of the reduced rate of deduction, is significantly less desirable for investors.