FEDERAL BUDGET SUMMARY – 2017
• Using a fuel from waste (e.g. landfill gas, wood waste or manure); or
• Making efficient use of fossil fuels (e.g. high efficiency cogenerations
Budget 2017 proposes three changes:
1. Eligible geothermal energy equipment under Classes 43.1 and 43.2
will be expanded to include geothermal equipment that is used
primarily for the purpose of generating heat or a combination of
heat and electricity (e.g. the cost of completing a geothermal
2. Geothermal heating will be made an eligible thermal energy
source for use in a district energy system; and
3. Expenses incurred for the purpose of determining the extent and
quality of a geothermal resource and the cost of all geothermal
drilling for both electricity and heating projects, will qualify as a
Canadian renewable and conservation expense.
CANADIAN EXPLORATION EXPENSE: OIL AND GAS DISCOVERY WELLS
Expenditures associated with drilling an oil or gas well that results in the discovery
of a previously unknown petroleum or natural gas reservoir (i.e. the first well in a
new reservoir or “discovery well”) are currently treated as a Canadian exploration
expense (“CEE”). CEE may be deducted in full in the year incurred. In contrast
expenditures associated with drilling a well, other than a discovery well, are
generally treated as a Canadian development expense (“CDE”) of which costs may
be deducted at a rate of 30% per year on a declining basis.
Budget 2017 proposes that expenditures relating to drilling or completing a
discovery well (or building a temporary access road to, or in preparing a site in
respect of, any such well), generally be classified as CDE instead of CEE. This will
ensure that expenditures more clearly linked to success are deducted gradually
over time as a development expense.
Drilling expenditures can continue to be classified as CEE in situations where the
well has been abandoned (or has not produced within 24 months) or the Minister
of Natural Resources has certified that the relevant costs associated with drilling
the well are expected to exceed $5M and it will not produce within 24 months.
Early-stage geophysical and geochemical surveying expenses will also still qualify
This measure will apply to expenses incurred after 2018. However, the measure
will not apply to expenses actually incurred before 2021 where the taxpayer has,
before Budget Day, entered into a written commitment to incur these expenses.
RECLASSIFICATION OF EXPENSES RENOUNCED TO FLOW-THROUGH SHARE
An eligible small oil and gas corporation (i.e. with taxable capital employed in
Canada of not more than $15 million) can currently treat up to $1M of CDE as CEE