A taxpayer deducts from its CCDE 
account any amount claimed as CDE 
in the year. If the taxpayer disposes 
of a Canadian resource property that 
is a mining property, the disposition 
does not give rise to a capital gain or 
a capital loss; instead, the taxpayer 
deducts the proceeds from its CCDE 
account in that year. In addition, a 
taxpayer deducts from its CCDE account 
any amount by which its CCOGPE 
account is negative at the end of the 
year. 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. 

Canadian Oil and Gas 

Property Expenses

A third category of deductible expenses 
under the ITA is Canadian oil and gas 
property expenses (COGPE). COGPE 
include the cost of acquisition of a 
Canadian resource property that is an 
oil and gas property. This includes the 
cost of land, exploration rights, licences, 
permits, leases, and a royalty interest in 
an oil and gas property in Canada. 

Many oil sands activities are more akin 
to mining than they are to conventional 
oil and gas activities. The costs of oil 
sands rights, licences, permits, and 
leases were formerly treated as CDE 
but are now classified as COGPE.

A taxpayer includes its COGPE in its 
cumulative Canadian oil and gas 
property expense (CCOGPE) account. 
The taxpayer may deduct up to 10% 
of the balance in a year (subject to 
proration for short years). The deduction 
that a taxpayer may claim in respect of 
its CCOGPE account is discretionary.

A taxpayer deducts from its CCOGPE 
account any amount claimed as COGPE 
in the year. If the taxpayer disposes of 
an oil and gas property that includes 
an oil sands property, the disposition 
does not give rise to a capital gain or 
a capital loss; instead, the taxpayer 
deducts the proceeds from its CCOGPE 
account in that year. If the CCOGPE 
account is negative at the end of the 
year, the taxpayer deducts the negative 
amount from its CCDE account.

A taxpayer may carry forward 
indefinitely any undeducted balance 
in its CCOGPE account and claim the 
amount in future years.

Foreign Resource 

Expenses

A fourth category of deductible 
expenses under the ITA is foreign 
resource expenses (FRE). FRE 
include expenses in respect of drilling, 
exploration, prospecting, surveying, 
and acquisition costs relating to a 
foreign resource property. They do not 
include, among other things, the cost of 
depreciable property and expenditures 
incurred after the commencement of 
production. 

Where a taxpayer carries on business 
directly in one or more foreign 
jurisdictions in respect of a foreign 
resource property, and incurs FRE, those 
expenses are added to the taxpayer’s 
cumulative foreign resource expense 
(CFRE) account on a country-by-country 
basis. The taxpayer does not claim a 
deduction directly in respect of any 
FRE but instead claims a deduction in 
respect of its adjusted cumulative 
foreign resource expense (ACFRE) 
account. (Unlike other accounts, the 
CFRE is adjusted for transactions 
subject to the successor corporation 
rules – discussed below – and a taxpayer 
claims a deduction in respect of its 

ACFRE and not in respect of its CFRE. 
Unless a taxpayer has been involved 
in a transaction that is subject to the 
successor corporation rules, its ACFRE 
will be the same as its CFRE.)

Where a taxpayer disposes of a foreign 
resource property, the taxpayer may 
elect to deduct the proceeds from 
its ACFRE account in respect of that 
country. If the taxpayer chooses not to 
make the election, it will be required 
to include the amount of the proceeds 
in income. The latter option may be 
preferred if the taxpayer has foreign 
exploration and development 
expenses (FEDE), or non-capital 
losses that might expire in the near 
future, or if the taxpayer is concerned 
about losing foreign tax credits.

In computing its income for a taxation 
year, the taxpayer may claim an optional 
deduction of up to 10% of the balance in 
its ACFRE account for a country (subject 
to proration for short taxation years), 
whether or not it has any foreign resource 
income for the year from that country. The 
maximum deduction is equal to the lesser 
of 30% of the ACFRE for the particular 
country (subject to proration for short 
taxation years) and the foreign resource 
income for that country. Where the 
taxpayer has an ACFRE account in respect 
of two or more countries, the taxpayer 
may also claim an additional deduction so 
that its maximum deduction (subject to 
proration for short taxation years) is equal 
to the lesser of 30% of its aggregate 
ACFRE balances in respect of all countries 
and its foreign resource income from all 
countries in the taxation year.

Successor Corporation 

Rules

The successor corporation rules (the 
SC rules) provide an exception to the 
basic scheme of the ITA restricting 
the deductibility of expenses to the 

© 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms 
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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 A Guide to Canadian Mining Taxation