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When it comes to tax advantaged investments for sophisticated investors, one investment class continues to provide a viable entry: oil.

United States: with the U.S. government’s backing, domestic energy production has created a litany of tax incentives for both investors and small producers. Several major tax benefits are available for oil and gas investors that are hardly found anywhere else in the tax code. The following are some of the tax incentives and benefits obtained by independent producers and potentially flowed to participating investors 1986 tax code that was revised to allow for the following:

  • 100% write-off of intangible drilling costs (IDCs)
  • 100% depreciation write-off of capital equipment over 7 years
  • 15% of income from the production is tax free (not a deduction)

Source: 1986 US Tax Code
Source: Department of Treasury – Internal Revenue Service

Canada: There are many Canadian tax advantages in investing in Canadian oil and gas operations. Some of these benefits include:

  • Upto 100% Canadian Exploration Expense credit (CEE)
  • Upto 30% Canadian Development Expense credit (CDE)
  • Upto 10% investment tax credits (ITC’s)
  • Upto 10% Canadian oil and gas property expense deduction (COGPE)
  • Foreign resources expense deduction (FRE)
  • Capital Cost Allowance (CCA)