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Canadian Development Expenses

The ITA provides a deduction for Canadian development expenses (CDE) incurred in Canada in the oil and gas context.

CDE is the default category for expenses incurred in:

  • drilling or completing an oil or gas well,
  • building a temporary access road to the well, or
  • preparing a site in respect of the well.

If an expense of this type does not qualify as a CEE, it is categorized as a CDE. If such an expense subsequently satisfied the definition of CEE, it will be reclassified as a CEE at that time.

CDE also includes other expenses related to the drilling of oil and gas wells, such as the cost of:

  • drilling or converting a well for the disposal of waste liquids;
  • drilling or converting a well for the injection of water, gas, or any other substance to assist in the recovery of petroleum or natural gas;
  • drilling for water or gas for injection into a petroleum or natural gas formationl and
  • drilling or converting a well for the purpose of monitoring fluid levels, pressure changes, or other phenomena in an accumulation of petroleum or natural gas.

CDE excludes the costs of depreciable property, such as well casings and pumps.

A taxpayer includes its CDE in its cumulative Canadian development expense (CDE) account. The taxpayer may deduct up to 30 percent of the balance in a year (subject to proration for short years). The deduction that a taxpayer map claim in respect of its CCDE account is discretionary.

A taxpayer deducts from its CCDE account any amount claimed as CDE in the year. In addition, a taxpayer deducts from its CCDE account any amount by which its cumulative Canadian oil and gas property expense (CCOGPE) account is negative at the end of the year (CCOGPE is discussed below). If the CCDE account is negative at the end of the year, the taxpayer includes the amount of the negative balance in its income for the year.

A taxpayer may carry forward indefinitely any undeducted balance in its CCDE account and claim the amount in future years, subject to the limitations imposed by the ITA.