Tax and Revenue Administration Alberta Corporate Tax Act Information Circular CT-18R3 - PART 1

CT-18R3 Part 1 / June 2000

ALBERTA CORPORATE TAX ACT INFORMATION CIRCULAR:
ALBERTA ROYALTY TAX CREDIT - PART 1

Part 1 of this Information Circular describes the calculation of, and the means by which corporations apply for, the Alberta Royalty Tax Credit. Part 2 provides the definitions and rules relating to restricted resource properties. The basic rules are mapped out in a "Decision Tree" (a PDF file).

The topics included under Part 1: General Information are:

• Alberta Crown Royalty
• Calculation of the Royalty Tax Credit
• Partnership Transitional Rules
• Royalty Tax Credit Instalments
• End-of-Year Application

The topics discussed under Part 2: Restricted Resource Property Rules are:

• Background Information
• Interpretation of the Decision Tree
• Discussion of Concepts Mentioned in the Decision Tree
  - Finished Drilling Date
  - Above-limit Corporations and Partnerships
  - Exempt Corporations
  - Restricted Corporations
  - Restricted Partnerships and Restricted Percentage
• Anti-avoidance Provisions
• Relieving Provisions

PART 1: General Information

ALBERTA CROWN ROYALTY

1. The first step in determining a corporation's Alberta royalty tax credit ("ARTC") is to determine the corporation's Alberta crown royalty for the year. Alberta crown royalty is total of amounts which are:

   a) royalties that are receivable by or payable to the government of Alberta under a lease or licence granting petroleum rights, natural gas rights or petroleum and natural gas rights; and

   b) required to be included in the corporation's income or not allowed as a deduction from income under the federal Income Tax Act (the "federal Act") - paragraphs 12(1)(o) and 18(1)(m), respectively;

   less

   c) any amount which is a reimbursement of an amount described above, received by the corporation under the terms of a contract.

   Further discussion on amounts that are included in Alberta crown royalty is provided in Interpretation Bulletin, CTIB-2, "Alberta Royalty Tax Credit - Technical Issues".

2. Royalties paid in respect of "restricted resource properties" (see Part II of this Circular) are generally deducted from the total royalties paid to Alberta (calculated in point #1 above) to arrive at the corporation's Alberta crown royalty.
   
   
3. Corporations are associated for ARTC purposes for a taxation year if they are associated at any time in the year under the federal Act and if they each have Alberta crown royalty in the year. Interpretation Bulletin CTIB-2, "Alberta Royalty Tax Credit - Technical Issues" describes circumstances under which corporations may also be deemed to be associated for ARTC purposes.
   
   
4. Associated corporations are required to share the crown royalty shelter (see paragraph 5) for a taxation year. The corporations allocate the crown royalty shelter by completing form AT128 for AT1 returns for taxation years ending prior to 1998. For AT1 returns for taxation years ending in 1998 or later, the corporations must complete the section entitled "Allocation of the Aggregate of the Crown Royalty Shelters" on page 2 of the AT1 Schedule 6. Failing that, the Minister of Finance shall allocate the crown royalty shelter among the associated corporations.

CALCULATION OF THE ROYALTY TAX CREDIT

5. Effective January 1, 1995, the determination of the crown royalty shelter and the specified rate are as follows:

   a) Crown Royalty Shelter: The crown royalty shelter is calculated as follows:

   (i) If a corporation is not associated with another corporation, its crown royalty shelter for a taxation year commencing after December 31, 1994 is $2,000,000. This is prorated downwards if the taxation year is less than 365 days.

   (ii) For taxation years commencing after 1994, the crown royalty shelter of each corporation in an associated group is the portion of $2,000,000 that is allocated to it. (The $2,000,000 is prorated downward if all corporations in the group have short taxation years).

   b) Specified Rate: The quarterly rate is a function of the Royalty Tax Credit reference price (RTCRP) that is set by the Minister of Resource Development. It is a function of oil and gas par prices for the previous calendar quarter. For quarters ending after 1994, the specified rate is determined as follows:

   • if the RTCRP is $100/m³ or less, the specified rate is 0.75;
   • if the RTCRP is more than $100/m³ but no greater than $140/m³, the rate is determined using the following formula: 0.75 - (2/40) x [(RTCRP - $100) / 100];
   • if the RTCRP is more than $140/m³ but no greater than $210/m³, the rate is determined using the following formula: 0.73 - (48/70) x [(RTCRP - $140) / 100];
   • if the RTCRP is greater than $210/m³, the rate is 0.25.

   See Table of ARTC Quarterly Rates.

PARTNERSHIP TRANSITIONAL RULES

6. If a corporate member of a partnership has Alberta crown royalty based on royalties paid by the partnership, its weighted average rate is generally based on the specified rates in effect during the corporation's taxation year and its crown royalty shelter is calculated without reference to the partnership fiscal period.

ROYALTY TAX CREDIT INSTALMENTS

7. A corporation's ARTC entitlement for a year is determined during the assessment of the corporate income tax return. However, the corporation may receive the ARTC for a taxation year in monthly instalments by making application in prescribed form (form AT158). The form is designed so that each application is for cumulative estimated instalment entitlements for the year to date less instalments previously received in the year. With any application, a corporation can make up for instalments previously missed or can adjust for apparent misstatement of previous months' claims.
   
   
8. Applications for instalments for a taxation year must be received by Tax and Revenue Administration ("TRA") before the end of the taxation year. TRA will not process an application for a month before the date of entitlement for the month.
   
   
9. Corporations that have had recurring maximum ARTC claims are not required to file instalment applications each month. Only one application at the beginning of the taxation year is necessary. A corporation that makes an annual claim for maximum instalments for a year should immediately advise TRA if circumstances during the year indicate that those instalments are excessive as interest is charged on excessive instalments.
   
   
10. An approved ARTC instalment is first applied to assessed balances outstanding on the corporation's tax account(s). Amounts not so applied will be paid to the corporation or, if the corporation requests, credited to its account as an instalment of Part 5 tax.
    
    
11. If an ARTC instalment paid or credited to the tax account exceeds the amount to which the corporation is in fact entitled, interest at a prescribed rate will be charged on this excess. Instalments paid could exceed actual entitlement if the estimate of Alberta crown royalty or crown royalty shelter on instalment applications exceeds the actual values.
    
    
12. An excess amount of instalments should be repaid as soon as possible to minimize interest charges.
    
    
13. Interest paid on excess ARTC instalments is not deductible in determining the taxable income in Alberta.
    
    
14. The payment of ARTC instalment claims is at the discretion of the Minister of Finance. Claims may be delayed, or refused entirely, for various reasons, such as:
    
    
    • the propriety of the claim is in question as a result of a current audit;
    • the corporation is in default of filing returns for prior taxation years;
    • the corporation has not supplied requested information necessary to process a return or an ARTC instalment claim.

END-OF-YEAR APPLICATION

15. Whether or not a corporation has received ARTC instalments during a taxation year, it is not statutorily entitled to ARTC until it has filed an AT1 and an AT1 Schedule 6 after the end of the year. Any credit amount, net of instalments, will be first used to offset tax, interest and penalties owing by the corporation, the offset being effective as of the actual date of filing. The offset will therefore reduce debit interest which may otherwise accrue after the date of filing.
    
    
16. The AT1 Schedule 6 application for ARTC for a taxation year cannot be filed before the tax return for the year is filed and must be filed no later than three years after the end of the taxation year. This is consistent with section 47 of the Act that permits the Minister of Finance to make a refund of an overpayment for a taxation year (for this purpose, an ARTC entitlement is considered an "overpayment") only if the return for the year is filed within three years from the end of the year.