OT30151 - Capital Gains

Allowable Costs. Drilling Costs.

Intangible drilling costs which have been allowed as a Case I deduction under the New Brunswick decision, i.e. the practice abolished by FA97, will normally be capitalised in the accounts along with the costs of the licence, plant and machinery etc. In reconciling the acquisition etc costs in the capital gains tax computation, a check should be made to ensure that such costs have been excluded.

It is unusual for any reimbursement of the intangible costs to be provided for in a sale contract, but any consideration which is found to be attributable thereto will be taxable as a Case I receipt.

TCGA92\s195 provides that in certain circumstances drilling etc expenditure related to exploration or appraisal work which, by virtue of the disposal, gives rise to an SRA recovery under CAA90\s138 is treated as enhancement expenditure under CAA90\s38(1)(b) to the extent of that recovery.