Income Tax Regulations — 1207
1207 (1) A taxpayer may deduct in computing his income for a taxation year such amount as he may claim not exceeding the lesser of (a) his income for the year, computed in accordance with Part I of the Act, if no deduction were allowed under this subsection; and (b) his frontier exploration base as of the end of the year (before making any deduction under this subsection for the year). (2) For the purposes of this section, frontier exploration base of a taxpayer as of a particular time means the amount by which the aggregate of (a) the aggregate of all amounts, each of which is an amount in respect of a particular oil or gas well in Canada equal to 66 2/3 per cent of the amount by which (i) expenses incurred after March, 1977 and before April, 1980 and before the particular time in respect of the well (other than expenses that may reasonably be regarded as having been incurred as consideration for services rendered to the taxpayer after March, 1980) if those expenses would be included in the Canadian exploration expense of the taxpayer within the meaning of paragraph 66.1(6)(a) of the Act (if that paragraph were read without reference to subparagraphs (iii) and (iii.1) thereof and without reference to the words “within six months after the end of the year, the drilling of the well is completed and” in subparagraph (ii) thereof, and if the reference in subparagraphs (iv) and (v) thereof to “any of subparagraphs (i) to (iii.1)” were read as a reference to “subparagraph (i) or (ii)”) other than (A) a cost of borrowing capital, including any cost incurred prior to the commencement of carrying on a business, that was a Canadian exploration expense of the taxpayer, (B) an expense renounced by the taxpayer under subsection 66(10.1) of the Act, (C) an amount that, by virtue of subparagraph 66.1(6)(a)(iv) of the Act, was a Canadian exploration expense, if such amount was an expense referred to in clause (A) or (B) that was incurred by a partnership referred to in that subparagraph, or (D) an amount that, by virtue of subparagraph 66.1(6)(a)(v) of the Act, was a Canadian exploration expense, if such amount was an expense referred to in clause (A) or (B) that the taxpayer incurred pursuant to an agreement referred to in that subparagraph, exceeds (ii) the taxpayer’s threshold amount in respect of the well, minus the amount that would be determined under subparagraph (i) in respect of the taxpayer for the well if the reference therein to “after March, 1977 and before April, 1980” were read as “after June, 1976 and before April, 1977”, and (a.1) where the taxpayer is a successor corporation, any amount required by paragraph (7)(a) to be added before the particular time in computing the taxpayer’s frontier exploration base, exceeds the aggregate of (b) all amounts deducted by the taxpayer under subsection (1) in computing his income for taxation years ending before the particular time, (c) 66 2/3 per cent of the aggregate of all amounts, each of which is an amount that became receivable by the taxpayer after March 28, 1979 and before the earlier of December 12, 1979 and the particular time, and in respect of which the consideration given by the taxpayer therefor was a property (other than a share, or a property that would have been a Canadian resource property if it had been acquired by the taxpayer at the time the consideration was given) or services the cost of which may reasonably be regarded as having been primarily an expenditure in respect of an oil or gas well for which an amount was added in computing the taxpayer’s frontier exploration base by virtue of paragraph (a) or in computing the frontier exploration base of a predecessor by virtue of paragraph (a) as it applied to the predecessor where the taxpayer is a successor corporation to the predecessor, as the case may be; and (d) where the taxpayer is a predecessor, any amount required by paragraph (7)(b) to be deducted before the particular time in computing the taxpayer’s frontie