British Columbia Hansard — Tuesday, November 25, 2014 (40th Parliament, 3rd Session) (20141125pm-Hansard-v18n7) (20141125pm Hansard v18n7)

20141125pm-Hansard-v18n7

British Columbia — Debates (Hansard)

Th ird Session, 40th Parliament OFFICIAL REPORT OF DEBATES OF THE LEGISLATIVE ASSEMBLY (HANSARD) THE HONOURABLE LINDA REID, SPEAKER ISSN 0709- 1281 (Print) ISSN 1499-2175 (Online) Tuesday, November 25, 2014 Aft ernoon Sitting Volume 18, Number 7

PROVINCE OF BRITISH COLUMBIA (Entered Confederation July 20, 1871) LIEUTENANT-GOVERNOR Her Honour the Honourable Judith Guichon, OBC Third Session, 40th Parliament SPEAKER OF THE LEGISLATIVE ASSEMBLY Honourable Linda Reid EXECUTIVE COUNCIL Premier and President of the Executive Council .............................................................................................................. Hon. Christy Clark Deputy Premier and Minister of Natural Gas Development and Minister Responsible for Housing ......................Hon.

Rich Coleman Minister of Aboriginal Relations and Reconciliation ......................................................................................................... Hon. John Rustad Minister of Advanced Education ............................................................................................................................................ Hon. Amrik Virk Minister of Agriculture ........................................................................................................................................................ Hon.

Norm Letnick Minister of Children and Family Development ....................................................................................................... Hon. Stephanie Cadieux Minister of Community, Sport and Cultural Development ........................................................................................... Hon. Coralee Oakes Minister of Education ..................................................................................................................................................... Hon.

Peter Fassbender Minister of Energy and Mines and Minister Responsible for Core Review .....................................................................Hon. Bill Bennett Minister of Environment ..........................................................................................................................................................Hon. Mary Polak Minister of Finance .................................................................................................................................................. Hon.

Michael de Jong, QC Minister of Forests, Lands and Natural Resource Operations......................................................................................Hon. Steve Th omson Minister of Health ............................................................................................................................................................... Hon. Dr. Terry Lake Minister of International Trade and Minister Responsible for Asia Pacifi c Strategy and Multiculturalism ..................Hon.

Teresa Wat Minister of Jobs, Tourism and Skills Training and Minister Responsible for Labour ...................................................Hon. Shirley Bond Minister of State for Tourism and Small Business ....................................................................................................Hon. Naomi Y amamoto Minister of Justice ...............................................................................................................................................................Hon.

Suzanne Anton Minister of Social Development and Social Innovation......................................................................................................Hon. Don McRae Minister of Technology, Innovation and Citizens' Services ................................................................................... Hon. Andrew Wilkinson Minister of Transportation and Infrastructure ......................................................................................................................Hon.

Todd Stone LEGISLATIVE ASSEMBLY Leader of the Offi cial Opposition ...................................................................................................................................................John Horgan Deputy Speaker .............................................................................................................................................................................Douglas Horne Assistant Deputy Speaker ...............................................................................................................................................................

Raj Chouhan Deputy Chair, Committee of the Whole ....................................................................................................................................... Marc Dalton Clerk of the Legislative Assembly ................................................................................................................................................... Craig James Deputy Clerk and Clerk of Committees .................................................................................................................................

Kate Ryan-Lloyd Sessional Law Clerk ...................................................................................................................................................Roderick MacArthur, QC Sergeant-at-Arms ................................................................................................................................................................................. Gary Lenz

ALPHABETICAL LIST OF MEMBERS Anton, Hon. Suzanne (BC Liberal) .............................. Vancouver-Fraserview Ashton, Dan (BC Liberal).....................................................................Penticton Austin, Robin (NDP) ................................................................................ Skeena Bains, Harry (NDP) ....................................................................Surrey-Newton Barnett, Donna (BC Liberal) ............................................... Cariboo-Chilcotin Bennett, Hon.

Bill (BC Liberal) ...................................................Kootenay East Bernier, Mike (BC Liberal) ................................................... Peace River South Bing, Dr. Doug (BC Liberal) ................................ Maple Ridge–Pitt Meadows Bond, Hon. Shirley (BC Liberal) ........................... Prince George–Valemount Cadieux, Hon. Stephanie (BC Liberal) ................................Surrey-Cloverdale Chandra Herbert, Spencer (NDP) .................................Vancouver–West End Chouhan, Raj (NDP) ...........................................................

Burnaby-Edmonds Clark, Hon. Christy (BC Liberal) ........................................ Westside-Kelowna Coleman, Hon. Rich (BC Liberal) ...........................Fort Langley–Aldergrove Conroy, Katrine (NDP) .............................................................. Kootenay West Corrigan, Kathy (NDP) ..................................................... Burnaby–Deer Lake Dalton, Marc (BC Liberal) ............................................. Maple Ridge–Mission Darcy, Judy (NDP) ..................................................................New Westminster de Jong, Hon.

Michael, QC (BC Liberal) .............................. Abbotsford West Dix, Adrian (NDP)............................................................Vancouver-Kingsway Donaldson, Doug (NDP) ......................................................................... Stikine Eby, David (NDP) ..........................................................Vancouver–Point Grey Elmore, Mable (NDP) ................................................... Vancouver-Kensington Farnworth, Mike (NDP) ............................................................ Port Coquitlam Fassbender, Hon.

Peter (BC Liberal) ................................... Surrey-Fleetwood Fleming, Rob (NDP) .......................................................... Victoria–Swan Lake Foster, Eric (BC Liberal) .......................................................Vernon-Monashee Fraser, Scott (NDP) ............................................................Alberni–Pacifi c Rim Gibson, Simon (BC Liberal) ............................................. Abbotsford-Mission Hamilton, Wm.

Scott (BC Liberal) .................................................Delta North Hammell, Sue (NDP) .................................................... Surrey–Green Timbers Heyman, George (NDP) .................................................... Vancouver-Fairview Hogg, Gordon (BC Liberal) ............................................... Surrey–White Rock Holman, Gary (NDP) .......................................Saanich North and the Islands Horgan, John (NDP) .......................................................................

Juan de Fuca Horne, Douglas (BC Liberal) ..............................Coquitlam–Burke Mountain Hunt, Marvin (BC Liberal) ....................................................Surrey-Panorama Huntington, Vicki (Ind.) ..................................................................Delta South James, Carole (NDP) .........................................................Victoria–Beacon Hill Karagianis, Maurine (NDP) ........................................Esquimalt–Royal Roads Krog, Leonard Eugene (NDP) .............................................................

Nanaimo Kwan, Jenny Wai Ching (NDP) ........................... Vancouver–Mount Pleasant Kyllo, Greg (BC Liberal) ........................................................................ Shuswap Lake, Hon. Dr. Terry (BC Liberal) ....................Kamloops–North Th ompson Larson, Linda (BC Liberal) .........................................Boundary-Similkameen Lee, Richard T. (BC Liberal) ......................................................Burnaby North Letnick, Hon.

Norm (BC Liberal) ..............................Kelowna–Lake Country Macdonald, Norm (NDP) ....................................Columbia River–Revelstoke McRae, Hon. Don (BC Liberal) .................................................. Comox Valley Martin, John (BC Liberal) ..................................................................Chilliwack Morris, Mike (BC Liberal) ..................................... Prince George–Mackenzie Mungall, Michelle (NDP) ..........................................................Nelson-Creston Oakes, Hon.

Coralee (BC Liberal) .............................................Cariboo North Pimm, Pat (BC Liberal) .........................................................Peace River North Plecas, Dr. Darryl (BC Liberal) .............................................Abbotsford South Polak, Hon. Mary (BC Liberal) .............................................................. Langley Popham, Lana (NDP) ...................................................................Saanich South Ralston, Bruce (NDP) ................................................................ Surrey-Whalley Reid, Hon.

Linda (BC Liberal) ..................................................Richmond East Reimer, Linda (BC Liberal) ........................................ Port Moody–Coquitlam Rice, Jennifer (NDP) ........................................................................North Coast Robinson, Selina (NDP) .............................................Coquitlam-Maillardville Routley, Bill (NDP) .................................................................. Cowichan Valley Routley, Doug (NDP) ............................................Nanaimo–North Cowichan Rustad, Hon.

John (BC Liberal) ................................................ Nechako Lakes Shin, Jane Jae Kyung (NDP) ...............................................Burnaby-Lougheed Simons, Nicholas (NDP) ................................... Powell River–Sunshine Coast Simpson, Shane (NDP) ..................................................... Vancouver-Hastings Stilwell, Michelle (BC Liberal) ........................................ Parksville-Qualicum Stilwell, Dr. Moira (BC Liberal) ........................................ Vancouver-Langara Stone, Hon. Todd (BC Liberal) .........................

Kamloops–South Th ompson Sturdy, Jordan (BC Liberal) ..................................West Vancouver–Sea to Sky Sullivan, Sam (BC Liberal) ...........................................Vancouver–False Creek Sultan, Ralph (BC Liberal) ..................................... West Vancouver–Capilano Tegart, Jackie (BC Liberal) ............................................................Fraser-Nicola Th omson, Hon. Steve (BC Liberal) .......................................Kelowna-Mission Th ornthwaite, Jane (BC Liberal) ..........................

North Vancouver–Seymour Th roness, Laurie (BC Liberal).................................................Chilliwack-Hope Trevena, Claire (NDP) .................................................................... North Island Virk, Hon. Amrik (BC Liberal) ............................................. Surrey-Tynehead Wat, Hon. Teresa (BC Liberal) .............................................. Richmond Centre Weaver, Dr. Andrew (Ind.) .......................................... Oak Bay–Gordon Head Wilkinson, Hon. Andrew (BC Liberal) ........................ Vancouver-Quilchena Y amamoto, Hon.

Naomi (BC Liberal) ................ North Vancouver–Lonsdale Y ap, John (BC Liberal) ......................................................Richmond-Steveston LIST OF MEMBERS BY RIDING Abbotsford-Mission ......................................................................Simon Gibson Abbotsford South ..................................................................... Dr. Darryl Plecas Abbotsford West ...................................................... Hon. Michael de Jong, QC Alberni–Pacifi c Rim ..........................................................................

Scott Fraser Boundary-Similkameen ................................................................ Linda Larson Burnaby–Deer Lake ................................................................... Kathy Corrigan Burnaby-Edmonds ..........................................................................Raj Chouhan Burnaby-Lougheed .............................................................Jane Jae Kyung Shin Burnaby North .............................................................................. Richard T.

Lee Cariboo-Chilcotin ........................................................................Donna Barnett Cariboo North .................................................................... Hon. Coralee Oakes Chilliwack ......................................................................................... John Martin Chilliwack-Hope ....................................................................... Laurie Th roness Columbia River–Revelstoke .................................................. Norm Macdonald Comox Valley...........................................................................Hon.

Don McRae Coquitlam–Burke Mountain .....................................................Douglas Horne Coquitlam-Maillardville........................................................... Selina Robinson Cowichan Valley ................................................................................ Bill Routley Delta North .........................................................................Wm.

Scott Hamilton Delta South...............................................................................Vicki Huntington Esquimalt–Royal Roads .....................................................Maurine Karagianis Fort Langley–Aldergrove ...................................................Hon. Rich Coleman Fraser-Nicola.................................................................................... Jackie Tegart Juan de Fuca .....................................................................................John Horgan Kamloops–North Th ompson ............................................ Hon. Dr.

Terry Lake Kamloops–South Th ompson ..................................................Hon. Todd Stone Kelowna–Lake Country ..................................................... Hon. Norm Letnick Kelowna-Mission .............................................................. Hon. Steve Th omson Kootenay East .......................................................................... Hon. Bill Bennett Kootenay West ............................................................................ Katrine Conroy Langley.......................................................................................Hon.

Mary Polak Maple Ridge–Mission ..................................................................... Marc Dalton Maple Ridge–Pitt Meadows ........................................................ Dr. Doug Bing Nanaimo ........................................................................... Leonard Eugene Krog Nanaimo–North Cowichan ......................................................... Doug Routley Nechako Lakes ........................................................................ Hon.

John Rustad Nelson-Creston ........................................................................Michelle Mungall New Westminster ............................................................................... Judy Darcy North Coast......................................................................................Jennifer Rice North Island .................................................................................. Claire Trevena North Vancouver–Lonsdale ........................................Hon.

Naomi Y amamoto North Vancouver–Seymour ..................................................Jane Th ornthwaite Oak Bay–Gordon Head ...................................................... Dr. Andrew Weaver Parksville-Qualicum .................................................................Michelle Stilwell Peace River North ................................................................................

Pat Pimm Peace River South ............................................................................Mike Bernier Penticton............................................................................................ Dan Ashton Port Coquitlam ..........................................................................Mike Farnworth Port Moody–Coquitlam ................................................................Linda Reimer Powell River–Sunshine Coast ................................................. Nicholas Simons Prince George–Mackenzie .............................................................

Mike Morris Prince George–Valemount ................................................... Hon. Shirley Bond Richmond Centre ......................................................................Hon. Teresa Wat Richmond East ..........................................................................Hon. Linda Reid Richmond-Steveston ..............................................................................John Y ap Saanich North and the Islands .................................................... Gary Holman Saanich South ................................................................................

Lana Popham Shuswap ................................................................................................Greg Kyllo Skeena .............................................................................................. Robin Austin Stikine ....................................................................................... Doug Donaldson Surrey-Cloverdale ....................................................... Hon. Stephanie Cadieux Surrey-Fleetwood ........................................................... Hon.

Peter Fassbender Surrey–Green Timbers .................................................................. Sue Hammell Surrey-Newton ................................................................................. Harry Bains Surrey-Panorama ........................................................................... Marvin Hunt Surrey-Tynehead ......................................................................Hon. Amrik Virk Surrey-Whalley..............................................................................

Bruce Ralston Surrey–White Rock ....................................................................... Gordon Hogg Vancouver-Fairview ..................................................................George Heyman Vancouver–False Creek ................................................................... Sam Sullivan Vancouver-Fraserview ......................................................Hon.

Suzanne Anton Vancouver-Hastings ....................................................................Shane Simpson Vancouver-Kensington .................................................................Mable Elmore Vancouver-Kingsway..........................................................................Adrian Dix Vancouver-Langara .................................................................Dr. Moira Stilwell Vancouver–Mount Pleasant .........................................

Jenny Wai Ching Kwan Vancouver–Point Grey .........................................................................David Eby Vancouver-Quilchena ................................................ Hon. Andrew Wilkinson Vancouver–West End ...............................................

Spencer Chandra Herbert Vernon-Monashee ...............................................................................Eric Foster Victoria–Beacon Hill .......................................................................Carole James Victoria–Swan Lake.........................................................................Rob Fleming West Vancouver–Capilano ............................................................. Ralph Sultan West Vancouver–Sea to Sky ..........................................................Jordan Sturdy Westside-Kelowna ................................................................

Hon. Christy Clark Party Standings: BC Liberal 49; New Democratic 34; Independent 2

CONTENTS Tuesday, November 25, 2014 Aft ernoon Sitting Page Routine Business Personal Statement .................................................................................................................................................................. 5571 Withdrawal of comments made in the House Hon. B.

Bennett Introductions by Members ..................................................................................................................................................... 5571 Orders of the Day Committee of the Whole House ............................................................................................................................................ 5571 Bill 4 — Miscellaneous Statutes Amendment Act (No. 2), 2014 (continued) M. Farnworth Hon. S. Anton S. Robinson V . Huntington B. Ralston Hon. R.

Coleman Report and Th ird Reading of Bills ......................................................................................................................................... 5578 Bill 4 — Miscellaneous Statutes Amendment Act (No. 2), 2014 Committee of the Whole House ............................................................................................................................................ 5578 Bill 6 — Liquefi ed Natural Gas Income Tax Act Hon. M. de Jong B. Ralston

TUESDAY , NOVEMBER 25, 2014 Th e House met at 1:31 p.m. [Madame Speaker in the chair.] Routine Business Personal Statement WITHDRAW AL OF COMMENTS MADE IN THE HOUSE Hon. B. Bennett: Madame Speaker, I hereby with- draw remarks I made during question period this mor- ning with respect to a member opposite misleading the House — two members. Madame Speaker: Th ank you, Member. Introductions by Members C. James: I have a very exciting announcement for staff in the building.

One of all of our staff , Ismael Ribeiro in Hansard broadcasting services, with his wife, Angela, are the very proud parents of a new son, brother to Isabella, who was born at 1:28 a.m. this morning at 8 lbs. I know the entire House will want to wish them very well and con- gratulations and a few hours’ sleep over the next little while. D. Ashton: It gives me great pleasure today to introduce a gentleman from the area where I’m from, Penticton. Th is gentleman kind of took me underneath his wing when I was a young political neophyte learning to be a councillor.

Mike Pearce, Queen’s Counsel, from Penticton, a former councillor and mayor of Quesnel and a former councillor and mayor of Penticton. Welcome, Mike. Nice to see you. Orders of the Day Hon. M. Polak: I call continued committee stage de- bate on Bill 4. Committee of the Whole House BILL 4 — MISCELLANEOUS STATUTES AMENDMENT ACT (No. 2), 2014 (continued) Th e House in Committee of the Whole on Bill 4; D. Horne in the chair. Th e committee met at 1:34 p.m. On the amendment to

section 9 (continued).

The Chair: Is the House is ready to deal with the amendment? [1335-1340] Amendment negatived on the following division: YEAS — 2 Huntington Weaver NAYS — 73 Sturdy Bing Hogg Y amamoto McRae Stone Fassbender Wat Th omson Rustad Wilkinson Pimm Sultan Reimer Ashton Morris Hunt Sullivan Cadieux Lake Polak de Jong Coleman Anton Bond Bennett Letnick Barnett Y ap Th ornthwaite Dalton Plecas Lee Kyllo Tegart Michelle Stilwell Hammell Robinson Farnworth Horgan James Ralston Corrigan Fleming Popham Kwan Conroy Austin Th roness Larson Foster Macdonald Karagianis Eby Mungall Bains Elmore Shin Heyman Darcy Donaldson Krog Trevena D.

Routley Simons Fraser Bernier Martin Gibson Chouhan Rice Holman B. Routley [1345] M. Farnworth: Following up on the amendment in terms of…. We were talking about consultation before the lunch recess, and the minister was talking about her view of consultation. We’ve talked about public consulta- tion. I’ve commented on the need for real public consul- tation and involvement, particularly in regional services, regional service areas when changes are being made. Th e member for Delta South has talked about local govern- ment consultation and the importance of that.

We have a few more questions in that particular area. Th en we will move our way through to some of the other parts of

section 9. I see a smile on the minister’s face. Interjection. 5571

British Columbia Debates5572 Tuesday, November 25, 2014 M. Farnworth: Well, Minister, if you’re concerned about that, just spare a thought for my colleague from Surrey-Whalley and the Minister of Finance, who have, I think, 100-some-odd sections on the tax bill to go through. Th at’s real. Interjection. Th e Chair: But we do digress. M. Farnworth: No, that’s good. Anyway, back onto the topic at hand, which is consul- tation with local government. Th e minister has talked about…. Y ou know, we have had great consultation in the past, but that’s under existing legis- lation.

Th ese changes give the ministry and the minister and the government signifi cantly more powers. Th e question, I think, and what we want on the record, is a commitment to consultation with local government, a commitment to the consultation with individual mu- nicipalities that are aff ected by these decisions. We want to make sure that that commitment is there and that it is fulsome and adequate.

If the minister could outline her thoughts on how consultation processes will take place with local govern- ments, whether at UBCM with that regional district level but also at the individual municipal level, that would be helpful in getting through this particular section. [1350] Hon. S. Anton: Policing is a matter of mutual interest be- tween the province of British Columbia and municipalities and, indeed, all British Columbians. We do have established processes around consultation.

My director of police servi- ces, for example, regularly attends the UBCM public safety committee meetings, the Lower Mainland mayors forum, B.C. Association of Chiefs of Police and just generally con- sultation around the province. Th at is how we do business now, and it is how we in- tend to continue doing business in British Columbia. Th e structure of our integrated units now and our specialized policing units as they currently exist is through collab- oration. We intend to continue that practice. S. Robinson: I’ve been listening to the questions and responses for the last little while.

I have a question that comes out of

section 9, and it’s (3)(e), where it notes that “the processes to be used to inform, and obtain input from, the community about the provision of the services” will be a factor here in this service agreement. I’ d like to hear from the minister what she understands to be the community. It’s on page 6 of the bill. I’ d like to know: what does the minister understand as the com- munity, and what input, specifi cally, will they be seeking when this is enacted? [1355] Hon. S.

Anton: In order have a specialized policing service under this section, and before it can come to cab- inet, there’s a lot of upfront work that needs to be done, including determining who the provider is and entering into a specialized service agreement with that provider. Th e specialized service agreement would contain a number of terms, which are included in that 4.02, includ- ing subsection 3(e), which the member has asked about. Th at

section there is intended to be interpreted broad- ly. It would be reliant on the form of specialized policing that was contemplated. Generally, the input would be local government. It could be community members or stakeholders. Again, it would depend on the specialized service. If the specialized service was a domestic violence unit, it might be one form of community. If the specialized ser- vice was a form of rather complicated Internet crime, for instance, it would be a diff erent community. It’s not possible at this point to say what community would look like, but community would be defi ned each time there was an agreement entered into. M. Farnworth: Also in

section 9 under 4.03 is the “Duty of municipalities to use and pay for specialized services” section. Again, this is another one of those areas where muni- cipalities have a number of questions and concerns about exactly how the government intends to implement this section. If the minister could outline the intent of the

section — how they see municipalities participating fi nancially — that would be a good place to start. Hon. S. Anton:

Section 4.03 is the

section which de- termines…. It’s a refl ection of the rest of the Police Act. It’s not actually how you decide the cost of a specialized service. It’s more about the allocation. Under the Police Act, if you are a municipality with more than 5,000 persons, you pay either 70-30 or 90-10 or 100 percent depending on whether you’re municipal or RCMP . And if you’re less than that, it becomes a prov- incial service. So this is simply a refl ection of that cost al- location in the Police Act. [1400] M. Farnworth: Th en, for municipalities that are cur- rently outside and not participating….

Th at’s the ques- tion I’m actually wanting to see. How will this apply to…? I don’t want to keep harping on Delta, but let’s say Delta. Or if you don’t want Delta, another specialized service area. Let’s say, for example…. Interjections. M. Farnworth: Th at’s okay. Even now, I’m going: “Y ou know what? We do have to kind of move along. ”

British Columbia DebatesTuesday, November 25, 2014 5573 In terms of specialized, if the minister is establishing, let’s say, a new specialized area of service that’s expanding over what is covered to municipalities that are not cur- rently participating, how are they going to be charged? Is it a case of their coming into an existing service area, where there are established costs for that particular ser- vice and the costs of that existing service are now spread out over the expanded service area? Or will they be a new net contributor to this larger, expanded service area? Hon. S.

Anton: Th e goal in any specialized services agreement would be to create equity in funding. I think the member’s question is in relation to if there is an existing specialized service and a new entrant — what that would look like. I can’t generalize on what that would look like. It would have to be subject to an agreement at that time, always keeping in mind the goal of equity in funding between the partners in the specialized service. M. Farnworth: So it would be a negotiation with equity as the underlying principle. I know one of the cri- tiques that is oft en made is this.

Let’s say an independent police force — we’ll use IHIT again — that is outside of IHIT goes: “Well, we have so few murders in our com- munity that, really, if we become part of it, we’re actual- ly subsidizing these other high-crime areas. Th erefore, that’s not fair to us. ” Th at’s the critique that’s levelled at it. Are those the kinds of things that are taken into con- sideration when these decisions are made? And as I said, are they done by negotiation? [1405] Hon. S. Anton: Y es, I’m certainly familiar with the issue that the member is raising.

I think the specifi c ques- tion is: if there are a number of municipalities, eight, in- volved and a ninth wants to come in, what would the agreement around that new municipality look like? Th ere would have to be an agreement entered into at that time with a costing formula. As to the principles of the formula, those are contained in…. Subsection 4.02(3) (

d) sets out the criteria, rules, methods and formulas by which the proposed service provider is to determine the costs of providing the services and allocate those costs as applicable. M. Farnworth: Th e key point I want to get on the rec- ord is that it’s not going to be something that is imposed but, rather, would be achieved through negotiation. Th at is the minister’s intent when these kinds of expansions or bringing in of municipalities or creation of new services take place. Th at’s the one issue. Th en, in terms of….

Again, it comes back to this be- ing enabling legislation, so I’ll raise it at this particular point. Th e member for West Vancouver–Capilano and others have raised the issue of…. It’s always preferable to get agreement through negotiation as opposed to using the heavy hand of imposition, which

section 10 certainly gives the ministry a great deal of power to do. In terms of trying to achieve the goal of greater inte- gration and regionalization of specialized teams, is the ministry considering the use of fi nancial incentives to accomplish the ministry goals? Are they considering using fi nancial incentives to bring local governments, for example, into certain specialized areas? If so, do they have any criteria that they’re thinking that would be in place to do that? [1410] Hon. S. Anton: The question was: would costs be achieved through negotiation generally? Th at is the in- tent.

Th at’s the goal, but it’s not always perfect. I go back to PRIME as an example of where some parties were more enthusiastic than others, and some came along more…. But at the end of the day, it was legislation, and it required it of every police force in British Columbia. Th e second question was around fi nancial incentives. Th ere is no specifi c plan for fi nancial incentives, but I will observe that we do spend $70 million a year right now on the provincial contribution to the specialized units in British Columbia.

I’ll give some examples of those — the CFSEU, Combined Forces Special Enforcement Unit; the ISPOT, the integrated sexual predator observation team; and the real-time intelligence unit. So there are groups where provincial funding does bolster the fund- ing which is received from other participants in those specialized units. M. Farnworth: If the province determined there is a need for a new specialized service and they felt it im- portant that that specialized service be in place, would the province then come to the table with new resources to help local government?

Or would the province say: “We believe there needs to be a new specialized service in place. We’re going to mandate that specialized service in place, but you, local government, will pick up the costs”? Hon. S. Anton: Th e answer is that it depends. Th ere are very signifi cant provincial contributions right now to specialized units. But would there always be a provin- cial contribution to every specialized unit? I would not be able to make that commitment right now, because it would depend on the circumstances of the specialized unit and all the surrounding circumstances of what was going on right at that time.

M. Farnworth: No, I understand the contributions that the province makes to specialized units. Th e point I’m making is that in a new specialized unit for, let’s say, something that’s not there at the current time that the province determines…. As we’ve talked about in our dis- cussion, what was a requirement for a specialized unit, let’s say, ten or 15 years ago….

British Columbia Debates5574 Tuesday, November 25, 2014 Cybercrime is probably the obvious one on that. We didn’t realize exactly the nature of that back then because it was just emerging. Now it is something new and dif- ferent and signifi cant. I’m just saying that if something were to emerge and the province determined, “Y ou know what?

We need to have a specialized unit in this, and municipalities, you’re going to be part of it, ” would the province be assuming costs for that? [1415] What I would like is a commitment from the minister that they’re not going to bring in a new specialized ser- vice and say, “Oh, we are implementing this. We’ve de- cided it’s important, but by the way, local government, you’re going to be picking up all the costs. ” Hon. S.

Anton: There is such a variety in funding models for specialized services, ranging all the way from CFSEU, where the funding is provincial and federal, all the way down to, for instance, a domestic violence team, which generally will be funded by the local municipalities. To give an example of domestic violence teams in this area, southern Vancouver Island, and in fact in domestic violence teams around the province, there is provincial contribution to those teams, but it’s actually generally not to the policing side, or not always to the policing side.

It’s really to support the community social workers who partner with the police in those domestic violence units. Again, as I said a moment ago, it is a case-by-case basis on these things, and it’s not possible to generalize as to funding. M. Farnworth: Th en I’ll ask the minister the ques- tion this way.

If in the future the province decides there is a need for an additional specialized service team, one that’s probably more primarily provincewide as opposed to being local to a particular municipality, I’ d be looking for a commitment from the minister, in terms of decid- ing, “Okay, we want this established, ” that there would be discussion and consultation with local government as to how the costs of that unit are going to be borne — whether they are borne entirely by local government or by the province or by a combination of both.

Th ere would not be an arbitrary decision, but rather, there would be a consultation around that. Hon. S. Anton: Th e answer is yes, there would always be discussion and consultation as to how the new cost would be borne. V . Huntington: In section (1)(

a) it says: “in the case of specialized services to be provided other than by the government of British Columbia, a government, govern- ment agent, municipality, entity or person…. ” Could the minister discuss with us what the ministry has in mind when it suggests an entity other than one of those pre- scribed in the bill? What are they thinking of in terms of a group, an entity, a being that could provide the services? [1420] Hon. S. Anton:

Section 4.01(1)(a)(i), and I think that’s the

section that the member for Delta South is referring to, talks about who might be the provider of a special- ized service. Th at’s set out more in 4.02(2), where it says, “Th e minis- ter may enter into an agreement or make an arrangement respecting specialized policing and law enforcement with any of the following:" the government of Canada, the gov- ernment of a province or an agent thereof, a municipality, an “entity on behalf of which a designated policing unit or designated law enforcement unit is established. ” Th e Organized Crime Agency of British Columbia, for example, would be that form of entity. V .

Huntington: It’s just that my curiosity was piqued when I realized that “entity” is defi ned in the defi nitions of the Police Act and covers a municipality, a regional district, a government corporation or any other prescribed entity, which I’m assuming falls in the minister’s comments. The bill so specifically says “other than by” any of those things. I just wondered what the government had in mind, if anything at all. Hon. S. Anton: Th e goal of the

section is to give fl ex- ibility as to who the specialized service provider would be. V . Huntington: Flexibility of this nature is interesting, specifi cally when they are so defi ned otherwise in the act. I notice there was a discussion about whether or not the agreement itself will be subject to public input at all. Th e minister said not likely, or no. I notice the agreement itself is not made public until ten days aft er the regulations have been completed.

How long does the minister anticipate the time period from the fi nalization of the agreement to the fi nalization of the regulations to be? [1425] During that entire period — i.e., the negotiation and consultation on the agreement to the point at which it becomes public — is that entire discussion confi dential? Hon. S. Anton: In order to get to cabinet, there needs to be an agreement, and that agreement, as we discussed earlier, is developed in consultation with local commun- ities, local police boards, local mayors and council. V .

Huntington: First, the question I asked was wheth- er from the beginning to the end — until the agreement is made public — that whole, entire discussion is confi - dential and whether the public will know that there is a special service provider being discussed. If the minister could answer that.

British Columbia DebatesTuesday, November 25, 2014 5575 Th en I could also add: will the regulations be made public at the same time the agreement is public? Hon. S. Anton: The consultations, as to the agree- ment, are generally not confi dential. However, as in all aspects of policing, there may be some aspects to those agreements which are confi dential. Th ere may be public safety concerns and so on that need to be kept confi den- tial. Generally, these will be discussions between muni- cipalities and police services and government. Generally, they’re not confi dential.

I suppose, as I said, some aspects of them may be in camera, but generally, people will be well aware of the conversations that are underway. [1430] As to when the regulations and the agreement become public, that will be at the same time, and that will be ten days aft er the regulation is passed.

Section 9 approved. On

section 10. M. Farnworth: I’ d just like the minister to explain sec- tion 10 because it appears, when you read it, to basically confi rm what was already in

section 9 — saying that you must abide by

section 9. Th is really is the hammer sec- tion in terms of allowing the minister to do all kinds of…. Th is is where, if you were to say to the local govern- ment: “Y ou know what? We’ve tried, and we think that there’s been enough consultation, and we are saying that you are now in this particular service or this particular service area. ” Th is is where this happens. Is my assess- ment of that correct — in the powers that it gives the minister by the addition of this section? [R. Chouhan in the chair.] Hon. S. Anton:

Section 15 sets out the duties of a mu- nicipality of more than 5,000 persons to bear the expens- es to maintain law and order. Th e new

section 15(1.1) clarifi es that the duties of the municipality include the duty to pay for specialized services. So it’s not…. I think we’ve already gone through when you would need to pay and so on. What this is just saying is that if you’re over 5,000 people, you pay up accordingly. M. Farnworth: I appreciate the minister’s comments on this particular section. In essence, what it does…. It says that if you had any doubts in the previous

section about what your roles and responsibility and the costs are,

section 10 in this makes it clear — doubly so. Again, the point I would stress to the minister at this particular point in the discussion that we’ve been having…. Th e minister said she wants to see greater integration and greater regionalization of specialized services and special service areas. Th e minister has stated that this is out of the Oppal report, and we have disagreed on that defi n- ition or that sense of it being out of the report. But the point I want to make to the minister is really simple. Y ou can achieve a lot more by cooperation and discussion than you can by imposing from top down. Th is

section and the changes in this bill give the minis- ter and the government considerable powers enabled to come top down and say: “Th ou shalt. ” What I would like to hear from the minister, as we get to this

section and the end of these sections, is that the key guiding principle in this legislation is going to be consultation with local government, consultation with the public — a sense that changes that are made in public view and that are transparent to people are much better than policy being made behind closed doors in cabinet by regulation so that people don’t understand why and how something is going on. I think that is crucial, and I would like the minister’s response to that. [1435] Hon. S. Anton: I think in the context of

section 10, the member is asking a slightly broader question. I’ll just to go back to basic principles — that I, as min- ister, am responsible for adequate and eff ective policing in British Columbia and, through me, government is re- sponsible for that. To repeat, we have built policing in British Columbia based on consultation. We will continue to do so, but recognizing always that there are challenges. Th ere are new forms of crime — Internet crime being a good example of something that wasn’t around not too long ago, gang crimes and so on.

At the end of the day, government is responsible for ensuring that there is adequate policing in the province. Th at’s what the intent of these specialized sections is. And this last piece, as it were, here in

section 15 — just spelling out that once all those other pieces are in place, yes indeed, the municipality has to pay the bill. Th at is indeed the case. Sections 10 and 11 approved. On

section 12. M. Farnworth: Can the minister explain exactly what this is? Is this a housekeeping change, or is there a sub- stantive change? Hon. S. Anton: Y es, this is housekeeping. If the mem- ber wants more, we’ll have to stand down for a moment while I get people in here, but I’m told that this is straight- up housekeeping. It just depends whether the member is happy with that answer or not. M. Farnworth: Y eah, that’s fi ne.

Section 12 approved.

British Columbia Debates5576 Tuesday, November 25, 2014 Th e Chair: Th e committee will recess until the min- ister arrives. Th e committee recessed from 2:40 p.m. to 2:43 p.m. [R. Chouhan in the chair.] On

section 13. B. Ralston: I just wanted to confi rm what the explana- tory note says — that this is a routine housekeeping amendment to remove an expired provision. Hon. R. Coleman: Y eah, it’s a housekeeping amend- ment to remove an expired provision.

Section 13 approved. On

section 14. B. Ralston: Th e intent of this

section is to remove a pro- hibition that prevents municipalities from “setting rates or charging fees by means of a franchise agreement under sec- tion 22 of the Community Charter. ” Th at particular

section gives a council the power to enter into an agreement which grants an exclusive right, and there are a number of head- ings, but (

d) is “gas, electrical or other energy supply system. ” Can the minister explain what the term “franchise agreement” means in this context? [1445] Hon. R. Coleman: Th e Community Charter allows a municipality to enter into a franchise agreement with a natural gas utility provider. Franchise agreements are also called operating agreements. It allows the local dis- tribution utility the right to operate within a municipal- ity’s roadways and typically includes a fee negotiated with the utility for it to obtain the franchise.

Th e fee may be in the form of a rate, typically at 3 per- cent, or a one-time fee or annual fee. Th e collection of fees is a mean for municipalities to secure compensation for the presence of the utility system within the municipality. Under section (5) of the Vancouver Island Natural Gas Pipeline Act municipalities within the Vancouver Island pipeline service area are unable to negotiate fran- chise fees within operating agreements.

Th is was put in place originally to make gas prices on the Vancouver Island system competitive and is no longer needed with the adoption of common natural gas rates for FortisBC Energy Inc. — so the customers of Vancouver Island and the Sunshine Coast. Repealing

section 7(5) will facilitate the establishment of operating agreements between the local distribution utility and 16 municipalities currently without operating agreements and allow these municipalities to charge the franchise fees other municipalities are allowed to do today. B. Ralston: I thank the minister for the answer. I have been briefed on this section, but I just want to ask a few questions so that it’s clear for the record what’s being talked about. Th ese 16 municipalities that have operating agreements with the natural gas utility…. I think typically, except in two cases, it’s Fortis.

Th ey will enter into negotiations with the…? I guess my question is: what’s the process, then, assum- ing that this provision passes? What will be the process by which these franchise fees or increases to rates will come about? Hon. R. Coleman: Today there are 16 municipalities on Vancouver Island who are currently without operat- ing agreements with regards to the natural gas pipeline that serves their communities. Th at was because of the way this act, the Vancouver Island Natural Gas Pipeline Act, eliminated that ability for them to do so.

Basically, really, what it comes down to is that it’s an operating agreement between the municipality and the local distribution utility. Th ose 16 municipalities, when this act passes, will currently…. Although they are with- out an operating agreement or franchise agreement, it will allow them to start charging municipalities and ne- gotiate with the utility. B. Ralston: Th ere is in the material a note that de- scribes these fees as typically 3 percent of the utility bill. Th is

section is obviously not setting that rate. What would be a reasonable expectation of natural gas consumers on Vancouver Island as to what this would cost? I understand that Fortis is engaged in an eff ort to even out its rates across the province, which on Vancouver Island will result in fairly sharp declines in rates. I take it that this opportunity to charge franchise fees by the mu- nicipality will send rates up slightly, although below what they were paying previously. Hon. R. Coleman: I think we should, fi rst of all, not….

Well, I’ll tell you, Member, they actually come down, not go up, because there’s been a premium paid for the Vancouver Island pipeline for a while to actually pay for its capital cost, I think, at the initial phase. I just want to correct one thing I said. Th is is actually 26 communities. I said 16. I have a typo in my notes. It’s 26 communities on Vancouver Island. [1450] What they will see is their gas rates come down by 25 per- cent over the next three years — about 7.9 percent in year 1 and 7.9 percent in year 2 and about 8 percent in year 3.

Th e 3 percent would come off that, so they’ d still be seeing their rates come down even with the franchise fee. B. Ralston: Now, given that there are, as the minister has just said, 26 municipalities, in order to avoid duplica- tion in negotiations, what’s the mechanism by which the

British Columbia DebatesTuesday, November 25, 2014 5577 municipalities will negotiate with the utility company in order to…? Will there be a common agreement, or will there be a template agreement, or how will that proceed? Hon. R. Coleman: Th ere’s a standardized template for all the municipalities entered in the negotiations and dis- cussions with the company. Th ere could be a variation of that, because it has happened in the past where they’ve decided to take fees in a diff erent way. But we would an- ticipate that they’ll probably all follow the template.

Th ere can be slight variations to the template, but at the end of the day, once an agreement is reached between the company and the municipality, they have to go to the B.C. Utilities Commission for approval. B. Ralston: So the Utilities Commission will assess the reasonableness of the rates that are set. I did ask, when I was briefed, for an example of what a typical municipality might receive in terms of revenue. I think we settled on Nanaimo as an example, and the antici- pated revenue.

Obviously, this is not fi nal because it’s not negotiated, and there may be individual variations, but the estimate that was given was about $570,000 annually. I just wanted to confi rm that, as a rough measure of what a municipality like Nanaimo might receive when this legislation is passed. Hon. R. Coleman: The number we have…. We’ve basically taken from 2016 to 2019 and done an average. So for the city of Nanaimo, averaged out over that period of time, it would be $574,869 per year. B.

Ralston: Perhaps the minister can just explain fur- ther what obligations, if any, the individual municipal- ities have aft er charging this fee. Is there an obligation that falls to them to do maintenance for or on behalf of or hire contractors to do maintenance on behalf of the util- ity company? Or is this to invest or cost-share any cap- ital improvements in the distribution system within their municipality? Or is it simply, as it says, a fee for operating the system within the jurisdiction of the municipality? Hon. R.

Coleman: No, there’s no requirement for them to maintain or operate any of the utility within the community. What the agreement really sets out is basic- ally that for the right to be there and have the utility, they pay an annual fee to the municipality. Th e agreements also do set out some protocols. Not protocols that cost municipalities anything, but it does set out protocols with regards to working in and around the lines, what type of backfi ll is necessary, what kind of load would have to be put on the road to protect the util- ity underneath the road, if it goes underneath the road — that sort of thing.

Th at piece is part of the template and part of the protocol agreement, but there’s no additional cost put onto municipalities. B. Ralston: Obviously, the municipalities are supporting this because they gain an additional source of revenue. Th e utilities will bear an additional cost, but I take it, from the way this will be structured, that the entire cost will be passed on to the consumer so that the individual utility will not bear any additional cost. Th erefore, for that reason, they support it as well. Is that correct? [1455] Hon. R.

Coleman: Basically, what happens is the util- ity puts it on the bill, the 3 percent, and they fl ow it back to the municipality. But because you’re averaging down and changing the agreement so that it’s treating the utility the same across the entire jurisdiction, that allows you to bring down the gas price at the same time. So basically, the companies support it. Th e municipal- ities defi nitely support it. We felt it was an appropriate time to do this, given the history of the particular pipe- line and how long it’s been in place. B.

Ralston: In the typical franchise agreement, how frequently or infrequently would the 3 percent be ad- justed? Is it an agreement with Utilities Commission ap- proval for the 21 years? I think there’s a reference to 21 years in a typical agreement with the municipality. Or is it something that would be looked at annually? What would be the frequency of fee review? Hon. R. Coleman: It’s for the life of the agreement, which is typically 20 to 21 years. B.

Ralston: Assuming this passes, which I’m certain it will, when would these provisions come into eff ect, in the sense that when could municipalities reasonably expect to receive those fees and plan for them in their budgets? Hon. R. Coleman: The commencement of the act — which is in the next section,

section 15 — would be January 1, 2015. Th en they would presumably do their negotiations and discussions and take their template, or their fi nal agreement, to the Utilities Commission some- time in 2015, and then implement from there. B. Ralston: Presumably, they’re incented to get that done so that they can have access to that revenue stream. Th e minister mentioned that this will appear on the monthly bill as a surcharge or, I suppose in the example of hydro bills, a rate rider. Is that how the average person who pays a gas bill will see this particular charge? Hon. R. Coleman: Th at’s correct, hon. Member.

Right now in the Interior it shows up as a franchise fee on the bill. For the consumer it would look the same way here. My understanding is that in advance of doing this work, most of the municipalities are at the stage of hav- ing these standardized templates with slight variations,

British Columbia Debates5578 Tuesday, November 25, 2014 whatever they are, done so that they’ d be in a place to move quickly once the legislation is passed. Sections 14 and 15 approved. Title approved. Hon. R. Coleman: I move the committee rise and re- port the bill complete without amendment. Motion approved. Th e committee rose at 2:59 p.m.

Th e House resumed; Madame Speaker in the chair. [1500] Report and Th ird Reading of Bills BILL 4 — MISCELLANEOUS STATUTES AMENDMENT ACT (No. 2), 2014 Bill 4, Miscellaneous Statutes Amendment Act (No. 2), 2014, reported complete without amendment, read a third time and passed. Hon. D. McRae: I call committee stage of Bill 6, inti- tuled Liquefi ed Natural Gas Income Tax Act. Committee of the Whole House BILL 6 — LIQUEFIED NATURAL GAS INCOME TAX ACT Th e House in Committee of the Whole on Bill 6; R. Chouhan in the chair. Th e committee met at 3:02 p.m. On

section 1. Hon. M. de Jong: Why don’t I begin by introducing to the committee the able staff that are going to help us, I think, move through some pretty technical provisions — to my right, Pat Parkinson; to my left , Paul Flanagan; and Christina Dawkins on the far left . B. Ralston: Beginning, then, on

section 1, my fi rst question is…. I’m going to have a series of questions about the defi nitions that are included in

section 1. Th e fi rst defi nition is “capital cost. ” I’ve looked in the federal Income Tax Act and haven’t found an exact equivalent to the term “capital cost. ” Can the minister explain: is this unique to this statute, or is it unique to the provincial Income Tax Act? Or have I not understood its relationship to the Canadian Income Tax Act and the defi nition there? Hon. M. de Jong: Th e defi nition in this case is some- what tailor-made to this act, and I can expand upon that if the member wishes. Th e Chair: Minister, continue. Hon.

M. de Jong: What we’re endeavouring to do here is defi ne capital investment property in terms of the use of that property for liquefaction activities. Th e cost of capital property, meaning this defi nition, may be added to the capital investment account and deducted in com- puting net income, all part of that calculation process for net income. But to the member’s fi rst question, it is something of a unique defi nition tailor-made to this act. B. Ralston: Th e next defi nition, “capital investment property, ” refers to

section 7, and I’ll deal with that when we come to

section 7. [1505] It says specifi cally it excludes the following property: “property that is described in an inventory. ” Th e word “inventory” is not defi ned in

section 1. Can the minister explain what is being referred to there? Hon. M. de Jong: Th e fi rst thing I need to do for the member and the committee is correct an error I have made inadvertently in describing the signifi cance and relevance of capital cost, which I think was the mem- ber’s fi rst question. In error, I referred to the question he is now asking, which is on capital investment property. With respect to the fi rst term that the member queried, the purpose behind the defi nition is to ensure that a cost can only be deducted once, either as a current expense or as a capital expenditure.

So it can only be deducted once, either as a current expense or as a capital expenditure — and clarifi es that the expenditure may be treated as cap- ital in nature only if it has not previously been deducted in computing net operating income. To the member’s second question, I am advised that the inclusion of the term “inventory” is meant to attract the usual defi nition that…. It would stand on its own, and I would refer back to the description I gave a few moments ago about the purpose behind the defi nition in the fi rst place. B. Ralston: Th e minister mentions the usual defi nition of inventory.

I wonder if he could expand upon that, be- cause this is a specifi c exclusion from capital investment property. Subsection (

c) reads: “property that is described in an inventory. ” So the reference is to the LNG facility or “intangible personal property that is used or exploited” to carry out activities at an LNG facility, but it specifi c- ally excludes this one, property described in an inventory. I’m interested in just understanding the nature of the ex- clusion and the statutory purpose for which it is excluded.

British Columbia DebatesTuesday, November 25, 2014 5579 Hon. M. de Jong: Maybe if I do this a little bit by way of analogy, the point is we don’t want to, for the purposes of the various calculations that take place under the taxa- tion legislation, have items double-counted or improper- ly included in things like capital cost. If you are a car dealership, vehicles are your inventory. We wouldn’t count vehicles as representing a portion of the capital cost. In this case, perhaps, the analogous situ- ation would be that we wouldn’t, for taxation purposes, include the cost or value of the liquefi ed natural gas itself in the calculation of capital cost. B. Ralston: Subsection (

d) refers to “a share. ” Can the minister explain what’s meant by that? [1510] Th ere are a number of defi nitions of a share. It’s not de- fi ned in the defi nitions section, so can the minister explain what’s meant and what’s the purpose of having it there? Hon. M. de Jong: It refers to a share in a corporation, and the intention is not to include a share in a corpora- tion in the calculation of capital investment property. B. Ralston: Subsection (

e) refers to “an interest in a partnership or trust. ” Th ere is reference later in the act to the way in which partnership interests in an LNG facility will be treated. Can the minister explain why it’s excluded from this defi nition? Hon. M. de Jong: Th e intention here, and the logic, is analogous to the previous subsection (

d) dealing with shares in a corporation. The member has alluded to the subsequent sections which deal with partnerships or trusts. Th e act purports to pick up the proportionate share and value of those later, in other provisions. But for the purpose of defi ning “capital investment property” in the same way that shares in a corporation are excluded, partnership or trust interests are excluded. B.

Ralston: Looking at the defi nition of “closure date, ” there are provisions in the act looking forward to the establishment of a facility and then the decision at some point, presumably many decades in the future, to close it. Th is refers to that. But the defi nition refers to the later of two alternates, (

a) and (b), and there’s a description under each one. Can the minister explain what the diff erence is between subsection (

a) and subsection (b)? In the Oil and Gas Activities Act,

section 41, “Certifi cate of restoration, ” I believe, if I have the right section, im- poses certain obligations on the operator at that point. Th e other date appears to refer to some other activity by the Legislature or the parliament outside of the regulatory process that’s governed by the Oil and Gas Commission. I don’t know whether I’ve answered my own question. Perhaps the minister could confi rm if I’m right, and if I’m wrong, I’m sure he will set me straight. [1515] Hon. M. de Jong: I think the member has essentially described it correctly.

Th e closure of a facility of this type attracts obligations and requirements pursuant to both provincial legislation, one of which is listed here in sub (a), and also, potentially, federal legislation, which is con- templated in the additional subsection. Th e defi nition is intended to make clear that closure date attaches to the time at which the requirements have been met of the latter of the two, be that environmental remediation obligations that might attach or apply either provincially or federally. B. Ralston: Th e next defi nition is “designated auto- mobile amount. ” It refers to

section 7307(1)(

b) of the regulations to the Canadian Income Tax Act. I have that before me. It’s described as the prescribed amount for automobile deduction limits. It seems a little out of place here, but perhaps the minister can explain why it’s there. Hon. M. de Jong: Like many of the sections we’re deal- ing with, we do draw, as the member has pointed out, on federal legislation for taxation purposes, of course. Entities are able, in certain circumstances, to claim the capital cost of an automobile. Th at is set out in the sec- tion referred to in a federal regulation.

I’m told that the 2014 limit to avoid situations where claims are made for the value of “luxury vehicles” is $30,000 before GST, PST; that is, the 2014 limit is $30,000. B. Ralston: Th e next defi nition, “disposition, ” is de- scribed as having “the corresponding meaning to the defi nition of ‘dispose’ in the

Interpretation Act. ” Th at’s

Interpretation Act,

chapter 238, in

section 29, where ex- pressions are defi ned. It’s a very expansive defi nition. I’ll just read it. It means “to transfer by any method and includes assign, give, sell, grant, charge, convey, bequeath, devise, lease, divest, re- lease and agree to do any of those things. ” Th ere is, then, a further clarifi cation of that term. Th e word here is disposition, not dispose. Can the minister explain why it was felt necessary to add an independ- ent variant of the defi nition for the purposes of this act? Hon. M. de Jong: Th e member again is correct.

Th is is modelled on the federal defi nition and is used to determine when the taxpayer disposes of a property for purposes of determining when a sale of inventory or capital invest- ment property occurs. As I think the member may have alluded to in his question, it sets out a list of transactions considered to be dispositions for the purpose of the act. [1520] I am advised that it does one further thing. It matches the timing of the disposition in those cases to the fed- eral act.

British Columbia Debates5580 Tuesday, November 25, 2014 B. Ralston: Just for clarity, I was referring to the prov- incial

Interpretation Act. Th at’s the defi nition that I gave, but the minister has referred to the federal

Interpretation Act. I’ d understood that it was referring to the provincial

Interpretation Act, but perhaps we could just clarify that before I begin my next question. Hon. M. de Jong: In fact, I’m reminded, both state- ments are correct. It does refer to and is intended to cor- respond to the provincial

Interpretation Act but is then modifi ed slightly to ensure that it is modelled and similar to the federal defi nition. B. Ralston: Th e disposition. It sets out, in addition to the defi nition that I’ve referred to, what is intended to be included, but then there are exclusions. I’m going to ask the minister a series of questions about the basis of or the intent of excluding subsections (d), (

e) and (f). Perhaps we can start with

section (d). It excludes the transfer of property where “there is no change in the benefi cial ownership, ” except if the transfer…. Th en there are a number of further clarifi cations or refi nements of that term. Can the minister explain the purpose of that particular exclusion from the general defi nition of “dis- position”? Hon. M. de Jong: Dealing with sub (

d) and the ex- clusion relating to trusts, I’m reminded that as we move through the act, we will come to a specifi c set of rules as it relates to trusts. Th erefore, it was deemed necessary and appropriate to exclude the trust-related provisions from the general defi nition in

section 1. B. Ralston: Subsection (

d) appears to contemplate situations where there is a transfer of legal ownership but the benefi cial ownership continues to be the same person or partnership. Would that be a reasonable

summary of (i), (ii) and (iii) in this section? Hon. M. de Jong: I believe that’s correct. B. Ralston: Th e next exception refers to a “transfer of the property for the purpose only of securing a debt or any transfer by a creditor for the purpose only of re- turning property that had been used as security for a debt. ” It would seem that that would be a disposition in the very expansive defi nition that was set out in the

Interpretation Act. I’m wondering why this is excluded. What purpose does it serve? [1525] Hon. M. de Jong: We are just confi rming, in response to the member’s question. Th e rationale, though, for the inclusion of subsection (e), I believe, relates to secur- ing consistency with the federal Income Tax Act. We are checking on that as we speak. B. Ralston: I was unsure whether we were going to simply await the answer, but I can continue. Th e next exclusion is subsection (f), where this transfer “to a trust as a consequence of which there is no change in the benefi cial ownership…. ” Th is seems to be a variant of (

d) above, which we’ve just referred to, where there’s a legal transfer of title but no change in the benefi cial ownership except that it’s refi ned to some specifi c circum- stances that are set out in (i), (ii) and (iii). Is that correct? Hon. M. de Jong: I believe that is correct also. As I mentioned, when we get to

part 7 of the bill, we’ll deal specifi cally with the manner in which trust and trust-like relationships are being dealt with. B. Ralston: Th e next two, I think, are self-evident. “Feedstock pipeline” appears to be a term of art that’s peculiar to the natural gas industry. Can the minister explain briefl y what is meant by a feedstock pipeline? Would, for example, a given LNG facility have more than one feedstock pipeline? Or is there the feedstock pipeline, and then there are spurs to that main feedstock pipeline? Hon. M. de Jong: Th e fi rst thing I can do is confi rm the accuracy of the information I gave a few moments ago around subsection (

e) and the previous defi nition. Th e draft ers and the intention is to ensure consistency with the federal act. With respect to feedstock, the member has cottoned on to what I think is an important term, albeit a term of art unique to this industry. A feedstock pipeline is the part of a natural gas pipeline that starts at or near the refer- ence point — and we’ll talk, I think, a little bit later about what a reference point is — and ends where the natural gas is delivered to the LNG facility.

That’s relevant and significant because we need to know that for calculating the cost of natural gas in in- stances where the gas is not acquired in an arms-length sale at the LNG facility. Th e taxpayers’ cost of natural gas includes the trans- portation cost for delivering gas to the LNG facility. Transportation costs on the feedstock pipeline are an eligible inclusion in calculating the cost of natural gas to the taxpayer. So that’s what’s contemplated.

I haven’t answered, though, the other question that the member asked, which is: can there be more than one feedstock pipeline, or is there likely to be more than one feedstock pipeline? I don’t know the answer to that, and I’ll endeavour to fi nd out. Interjection. Hon. M. de Jong: Th e answer — this just in — is no. It is contemplated that there would only be one feedstock pipeline to an LNG facility. [1530]

British Columbia DebatesTuesday, November 25, 2014 5581 B. Ralston: I think that relates directly to the next def- inition, the “feedstock pipeline inlet, ” which is the point at which the volume of gas, for the purposes of calculat- ing tax on it, enters the plant. Th e defi nition of feedstock pipeline inlet: “means a meter station that is (

a) located in British Columbia on a natural gas pipeline, and (

b) designated by regulation in respect of an LNG facility. ” I think there is some ref- erence elsewhere to Spectra 1 or Spectra 2. I’m not sure at this moment. Can the minister, then, explain that the defi nition of the feedstock pipeline inlet means the point at which the gas is deemed to enter the plant, for the purposes of cal- culating its volume, and therefore the basis for taxation? Hon. M. de Jong: I’m going to correct, I think, one thing that the member said in posing the question. Th e feedstock pipeline inlet is the starting point for determin- ing the start of the feedstock pipeline.

I think that means it’s important to think of the inlet as the beginning of the feedstock pipeline and not the inlet to the LNG plant, the LNG facility itself. B. Ralston: In practical terms, is that in the immediate vicinity of the LNG plant — by immediate, I’m thinking relative to the length of the pipeline — within a couple of kilometres of the plant? Or is it a location that would be somewhere well upstream on the pipeline? Hon. M. de Jong: I think I understand the member’s question. It is likely to be signifi cantly upstream.

It would be incorrect to think of this as a point a kilometre or two from the LNG facility, insofar as we are contemplating LNG facilities on the west coast. B. Ralston: Assuming that that’s the case and it’s well upstream, what happens in the case of where…? One hears that some of the proposals are that there may be proponents who combine on the ownership of a pipeline and then split, at some point, the contents, I guess, or the gas that’s being pumped through the pipeline. So how would that work, in terms of determining where the feedstock pipeline inlet would be?

Would that mean that there would be a designated feedstock pipe- line inlet when the pipeline came to a fork so to speak? Or is there some other way that it would be calculated? Hon. M. de Jong: I think the member describes a scen- ario that may well occur. We haven’t…. I’m reminded, though, that in addition to the feedstock pipeline inlet, the LNG facility inlet meter would exist and would be in a position to track actual gas that has travelled along the feedstock pipeline to an LNG facility. [1535] It should be, as a result, possible to do the calcula- tions necessary.

Th ere is a variety of them, depending on whether it is an integrated operation or there are deemed purchases and sales at the LNG facility. It should be pos- sible to diff erentiate in the circumstance that the mem- ber has described. B. Ralston: Th e further defi nition that has the word “feedstock” in it is “feedstock spur pipeline. ” Th at defi n- ition refers to “a natural gas pipeline that delivers natural gas from a feedstock pipeline to the series of systems de- scribed in

section 8 (1) (a). ” Th at’s the

section that refers to LNG plants. One of the commentators on the bill that I read says the following: “Th e

interpretation of the phrase ‘series of systems’ will be important in determining what infra- structure will fall within the defi nition of ‘LNG plant, ’ thereby entitling it to be included in the taxpayer’s cap- ital investment account. ” Since this uses the phrase “series of systems, ” which is repeated in

section 8, the minister may want to answer that now, or we could defer it until we get to

section 8. It is apparently, according to commentators, important for the reasons that I just set out — that it will determine what’s included in the capital investment account — and that has certain implications for the ultimate amount of tax that would be payable. Hon. M. de Jong: Again, the member has correctly identifi ed the signifi cance of the term “feedstock spur pipeline, ” being a pipeline that moves the natural gas delivered by a feedstock pipeline into the LNG facility. He has correctly identifi ed another signifi cant aspect of the defi nition.

Insofar as the feedstock spur pipeline is the spur from the feedstock pipeline to the LNG plant, it is considered, pursuant to the defi nition, part of the LNG plant. Th e capital cost of the spur pipeline, therefore, is eligible for inclusion in the capital investment account. As the member has, again, correctly pointed out, that is relevant for a whole series of reasons. B. Ralston: To continue with the

interpretation of the phrase “series of systems, ” it’s not defi ned in

section 1, and for the reasons that this commentator points out, it’s im- portant for determining the capital investment account. Can the minister at this point give a defi nition of “ser- ies of systems”? It gives them some alternatives. Is there a defi nition in the federal act? I wasn’t able to fi nd it. Th at may be the defi ciency of my research. Or is this a term that’s unique to this legislation and, therefore, will be de- fi ned for the fi rst time when one of these plants comes into existence? Because it’s important for the tax lawyers, I’m sure that the answer will be scrutinized.

But I’m sure, equally, an answer would be appreciated. Hon. M. de Jong: To the member: again, a reasonable question. If he looks at the defi nition term “feedstock spur pipeline” and the reference to a “series of systems, ”

British Columbia Debates5582 Tuesday, November 25, 2014 it’s the next phrase that probably helps answer the ques- tion: “described in subsection 8 (1) (a). ” If we go to sub-

section 8(1)(a), there is the reference to what is meant by the series of systems. I won’t read them. But they are there and provide guidance as to what is captured by the defi nition of “feedstock spur pipeline. ” [1540] B. Ralston: Well, there is a defi nition in

section 8. Th is is the fi rst opportunity to ask some questions about the term “series of systems. ” I’ll come back to that when we get to

section 8 because I think it deserves a bit more exploration. I want to move now to the next defi nition, which is the defi nition of “fi nancial incentive. ” It’s used in a number of sections — 31, 38, 60, 61, 85, 90, 108, 112 and 118. I haven’t been able to fi nd a defi nition or discussion of fi - nancial incentive in a comparable tax act. I guess there are a couple of questions that maybe go together. Is it a term that’s unique to this act? And is it a similar concept to the taxable benefi t under the federal Income Tax Act? Hon. M. de Jong: Th e term, I’m advised, is unique to this act.

Th e concept is not and is refl ective and similar to the federal act. It is intended to describe the types of incentives that reduce the cost to the taxpayer of current expenses or capital expenditures. Th e point is that these amounts are taken into account to reduce the deductions or costs that the taxpayer may claim in computing the taxpayer’s net income and net operating income. So con- cept matches what exists federally; the term is specifi c to this act. B. Ralston: Can the minister specify the

section of the federal act or the exact term that it’s analogous to in the federal act? Hon. M. de Jong: If the committee will give me a mo- ment, I’ll endeavour to secure the

section if I can; other- wise, I’ll seek it in due course. Oh, I have it. B. Ralston: Th at was quick. Hon. M. de Jong: I’m advised that the concept that I’ve described here and captured by the defi nition of “fi - nancial incentive” is dealt with in the federal act at sec- tion 12(1)(x). B. Ralston: Th e reference there in the headline is in- ducement, reimbursement, etc., in 12(1)(x). It’s quite dense, and I don’t have the opportunity to read it here. But it’s a term that occurs in other sections so perhaps, if necessary, we can revisit it. [1545] I wanted to understand the concept a bit better.

Is it meant to apply to a situation where an LNG company, for example, buys a piece of capital equipment but gets a large rebate? Would that be considered a fi nancial incentive? Hon. M. de Jong: I should ask the member: a public or governmental rebate or a rebate from the private sec- tor supplier? B. Ralston: In this fi rst example, a rebate from a pri- vate sector supplier. Hon. M. de Jong: Th is

section is not intended to cap- ture that circumstance. B. Ralston: Th en let me turn to what the minister al- luded to in his earlier answer, or his earlier question: if the LNG company receives a subsidy from the federal government. For example, if the federal government granted the LNG alliance its wish, which is an acceler- ated capital cost depreciation, would this be considered a fi nancial incentive? Hon. M. de Jong: In the case of a reduction in tax, the answer would be no. If the federal government cut a cheque to a taxpayer, the answer is yes. B. Ralston: Can the minister give an example of a fi - nancial incentive that would be counted as other income — the references in the

section to other income? Hon. M. de Jong: We’ve been sort of struggling with the diff erence between the capital side and the income side of the equation. I think the member’s question re- lated to the income side. A training subsidy or a training tax subsidy would probably qualify on the income side. B. Ralston: Can the minister explain, then: what is the purpose of this defi nition? Clearly, it’s dealt with in other sections, and there appears to be an attempt to exclude those payments or amounts that are classifi ed as fi nancial incentives from certain calculations of tax.

Can the min- ister explain what the purpose is behind this defi nition? [1550] Hon. M. de Jong: I think the question related to the overall rationale. Th e short answer, I believe, is because we felt it was necessary to have provisions contained with- in the LNG Income Tax Act that were analogous to or similar to provisions that exist in the federal legislation — having a construct for how to deal with the various items contained under the defi nition of “fi nancial incentive. ” B. Ralston: It would appear, looking down to later sec- tions, that fi nancial incentives are meant to be included in other income under

section 31. Th ey’re also meant

British Columbia DebatesTuesday, November 25, 2014 5583 to be included in the capital investment account under

section 60. By the defi nition, they are meant to be included in both, other than in the circumstance where the taxpayer is at the tier 1 tax level. Wouldn’t these two defi nitions — or that method of in- cluding them in the two sections — cancel each other out? Hon. M. de Jong: I hope I’m capturing the essence of the member’s question. Th e way the sections are intended to work together is, ultimately, to ensure that a taxpayer who is in receipt of a fi nancial incentive is not receiving a double benefi t. It is either captured on the income side or the capital side of the equation.

Th at’s the rationale for the language contained here, coupled with the other sections, a couple of which the member has already mentioned. B. Ralston: Th e defi nition also in sub (

b) refers “to the extent that the amount may not reasonably be con- sidered to be a payment made in respect of the acqui- sition…in the taxpayer, the taxpayer’s business or the taxpayer’s property. ” Th at would seem to contemplate a fairly expansive defi nition. Is that meant to capture non-legal payments that might be characterized as incentives, such as bribes or things like that? Of course, the Income Tax Act is fair- ly non-judgmental when it comes to examining sources of income. [1555] Hon. M. de Jong: I’m advised as follows. Th e purpose behind sub (

b) is to make clear that in circumstances where the taxpayer has received payment and the payer has received value back — and it may be for inventory; it may be for a capital item — the subsection is designed to make clear that that is not considered an inducement, refund or reimbursement within the meaning of the def- inition of “fi nancial incentive. ” Th at’s the rationale behind the inclusion of sub (b). B. Ralston: Just looking then at (

a) and (

b) in this def- inition, there is an “and” joining the two. I’m wondering, then, if a grant is received, and it’s directed to the pur- poses set out in sub (b), arguably is it then not a fi nan- cial incentive? I’m wondering where the payment or the inducement or the refund or the reimbursement or the assistance crosses the line from being a legitimate payment as de- scribed in (

b) to being a fi nancial incentive as described in (a)? Hon. M. de Jong: I think the answer is: in circum- stances where there is an absence of value fl owing to the payer. Th e member referred to the grant. Th at, it strikes me, by defi nition excludes the fl owing of value back to the payer. Th at would be, on the surface at least, from my perspective, a determinant of what diff erentiates a trans- action that’s captured by sub (

a) or sub (b). B. Ralston: Th e minister has referred to value fl owing back to the payer. Obviously, if a grant is made, there may be certain benefi ts that are at least partially economic in the sense that to give a grant to an activity may stimu- late, arguably, other economic activity in the region or the area. [1600] Is that meant to then disqualify any of these entities from receiving grants or assistance and having it charac- terized as other than income? Hon. M. de Jong: Th is is not to be critical.

I’m not sure I understood fully the question, so I may off er a response that’s not helpful at all to the member. Maybe he could take another stab at it, and I’ll listen very carefully. B. Ralston: Well, let me just try and put it another way, because I’m grappling to understand this and the pur- pose of this. Th ere’s a defi nition with “inducement” here, and it’s fairly broadly written. Would a tax subsidy or incentives…? Do they count as…? Are they considered inducements such that they fall within this defi nition, I suppose, of “fi nancial incentive”? [D. Horne in the chair.] Hon.

M. de Jong: Y es, in that case…. Th at’s helpful. I can respond, I think, specifi cally. Th e

section would oper- ate in a way that that kind of a benefi t fl owing to the tax- payer would be captured. B. Ralston: Th e next defi nition is a defi nition of “fi - nancing charge. ” Again, it’s a fairly broad defi nition. Is this one that’s derived from the federal act, or is it some- thing that’s unique to this act? Hon. M. de Jong: Once again I am reminded and can advise the committee that the concepts enshrined in this defi nition of “fi nancing charge” are taken from and con- sistent with that which appears in the federal Income Tax Act.

I don’t, however, want to convey to the committee that there is a defi nition within the federal Income Tax Act that mirrors this. It is conceptually consistent, but I am told that the fed- eral income tax provisions contain reference to a whole broad set of variants and diff erent circumstances. But the principles enshrined here are consistent, I am advised, with what is in the federal Income Tax Act. B. Ralston: Perhaps, then, the minister can explain the draft ing strategy, or why it has proposed not sim- ply to adopt the federal defi nition and to create a new, I

British Columbia Debates5584 Tuesday, November 25, 2014 suppose, more succinct one. Other than accessibility, is there some purpose beyond that in not simply adopting the federal defi nition, given that that would be something that would have been interpreted, presumably, and be a known commodity in terms of calculating what a fi nan- cing charge might be? [1605] Hon. M. de Jong: It’s a two-part answer. One relates to ensuring clarity, and the second part of the answer re- lates to the intent behind which this has relevance.

Unlike federal circumstance, this act, read in its entirety, makes it clear that no amount in respect of a fi nancing charge is deductible in computing net income — that operating income or net operating loss — under the act. Th e defi nition of fi nancing charge sets out all of the amounts that are considered to be non-deductible fi nan- cing charges. Instead, taxpayers will be allowed to deduct an amount in respect of an investment allowance to re- fl ect the cost of capital. But it is a combination of clarity and intent as to how fi nancing charges will be dealt with under the LNG Income Tax Act. B.

Ralston: Ordinarily, fi nancing charges are deduct- ible against income in most business circumstances. Th e minister has referred to the investment income account, subject to what the prescribed rate is, which is going to be imposed by regulation. Th ere will be a stipulated amount that will be calculated each year. Is that the reason why this was excluded as a deduction? It is, I think, an unusual step, so perhaps the minister can explain the thinking of the draft ers in excluding it. Hon.

M. de Jong: Well, it was certainly a specifi c deci- sion and policy choice that we have made and set out in the provisions of the act. In part, I would say, to disincent certain behaviour in these circumstances, taxpayers will be treated equitably on the basis of the mechanism that has been developed. So it is a purposeful policy choice that has been made in developing the taxation regime. B. Ralston: The financing charge includes “(

a) an amount paid or payable by the taxpayer as or instead of interest, ” but goes on to add a number of other charges that would be ordinarily incurred in the course, I think, of fi nancing through various means. One of the commentators’ notes that I discovered notes that “interest expense is generally deductible under the federal Income Tax Act. ” Th e reference is to the B.C. Mineral Tax Act, which “allows for an increase to the cap- ital investment account by an amount of imputed interest.

In contrast, the LNG tax will not allow any recognition of interest expense or any other ‘fi nancing charge’ in the computation of income or the addition of notional inter- est expense to the capital investment account. ” [1610] First of all, is that an accurate statement of the inten- tion? Secondly, can the minister explain why the choice was made not to model the B.C. Mineral Tax Act? Hon. M. de Jong: I was listening carefully to the mem- ber reading from the commentator, as he described it. I think that is correct. If the member wants to send the quotation over, I’ll happily review it.

But I think, essen- tially, the quotation correctly described the circumstance created here. With respect to the second part of his observation/ question — a purposeful decision by the government, in the context of this legislation, not to allow a dollar-for- dollar interest cost deduction and, instead, opt for the investment allowance. B. Ralston: Well, I don’t want to make it a mystery. What I was reading from was described as Blakes Bulletin. It’s a law fi rm, and it’s a commentary on the draft legis- lation to implement the LNG tax dated November 3, 2014. Th at’s part of their commentary on it.

I think that’s something that can be easily retrieved. Th at’s their com- ment on that. One commentator has suggested that the choice is to not favour whether an LNG project is fi nanced by debt or equity, and that’s the reason for not permitting the de- ductibility of interest, and that the investment account is the mechanism by which an even-handed approach to whatever fi nancing method is undertaken would be achieved. Is that a fair comment in terms of the legisla- tive purpose? Hon. M. de Jong: Th at was part of the consideration. B. Ralston: Th e defi nition of “fi scal period” I think is straightforward.

I wanted to move to the defi nition of “hedging transaction. ” There’s a definition that describes an agreement, a hedging agreement, which is related to an underlying variable that’s not in the control of the party to an agree- ment. But then aft er (iii) it begins a distinction, “other than a transaction or series of transactions, ” and it goes on. Generally, the exceptions are always more intriguing than the principle defi nition. So can the minister explain, fi rst of all, generally what a hedging transaction means and then, secondly, what the exclusion refers to and why? [1615] Hon.

M. de Jong: Th is is meant to capture transactions, or a series of transactions, that are designed to reduce a risk of loss or profi t. Th en beyond that, other than an agreement held for the purpose of, and until the receipt of a good or a service by the taxpayer or for the delivery of a good or a service to the taxpayer in respect of liquefaction activities. Th e

British Columbia DebatesTuesday, November 25, 2014 5585 other kinds of agreements that are contemplated here — acquisition or disposition of foreign currency — where we’ve also, obviously, included a prescribed transaction…. Th e point of the

section is to make it clear that no amount in respect of a hedging transaction is to be in- cluded or deducted in computing net income, net oper- ating income or net operating loss under the act. Th at is the grand purpose behind this

section — to make it clear that hedging transactions aren’t to be included for those purposes. But I think that the member had a second or perhaps more fundamental question, and I’ll await his response. B. Ralston: No, I think the purpose is relatively straightforward, and it’s meant to be excluded somewhat — well, precisely — analogously to fi nancing charges, in- cluding interest, but I’m wondering what the exception is that begins aft er (iii). It refers to “other than a transaction or series of transactions, ” an agreement may be entered into and held for the purpose, until receipt or delivery.

It seems like a description of an ordinary contract where you pay some money and then you receive a good or a ser- vice down the road. It doesn’t seem to be anything more complicated than that, but perhaps the minister can con- fi rm whether that’s accurate or add his own gloss to that. [1620] Hon. M. de Jong: Th e practical basis for which sub (iv) is included, I am advised, is to ensure that there is a mechanism by which taxpayers can enter into a fi xed long-term contract for both the purchase of natural gas coming in one end of the LNG facility and the sale of li- quefi ed natural gas going out the other end.

Th e draft ers wanted it to be clear that that was a contractual arrange- ment that they were permitted to enter into. B. Ralston: Th e other question I had was related to…. I think I know the answer to this, but I just want it to be for clarity. It refers at the end to a prescribed transaction or series of transactions which could reasonably have been said to be “undertaken for the purpose of reducing or eliminating a taxpayer’s risk of loss and opportunity for gain or profi t…. ” Th is doesn’t refer to ordinary insur- ance, I take it, then, does it? Hon.

M. de Jong: Basic insurance contracts and cover- age would not be captured by this. However, I am told that there is a trade in hedging insurance costs and trans- actions. I’ve never participated or am that familiar with the mechanism by which that occurs but am advised that it does. Basic insurance packages and coverage, though, would not be captured by this. A more sophisticated hedging scheme around insurance would. B. Ralston: I think that’s reasonably clear.

Presumably, given the reported value of some of the investments that are being made in these plants, the insurance premium might very well be a substantial fee, so there might be some eff ort to seek to reduce it by some fi nancial engin- eering. But I understand the minister’s comment. I think the defi nition of “improvements” is a fairly time-honoured one, and I don’t have a question there. Th e defi nition of “land, ” perhaps counterintuitively, also includes land covered by water.

I take it that’s so that the waterfront area of an LNG plant may in fact have the liquefaction facility fl oating on a barge or some other structure, and that’s intended to cover that possibility. I think that’s what’s intended. Perhaps the minister could just confi rm that. Hon. M. de Jong: Th at’s correct. And I’m reminded of circumstances where, for example, a jetty has been con- structed as part of the facility. B. Ralston: Th is next defi nition I think is more at the heart of the bill than many others. Th e term is “liquefac- tion activities, ” and it appears to have been written very broadly.

I have a number of questions about that par- ticular defi nition. Th e term in sub (a)(ii), “a right to acquire…. ” Given that that may be a contract with someone who is a non- resident, is it intended to extend the defi nition of lique- faction activities to a non-resident who has contractually a right to acquire LNG? [1625] Hon. M. de Jong: It is, in the circumstances enumer- ated or enunciated in the subsection, for a facility locat- ed within B.C. B.

Ralston: One of the commentators notes: “Th e bill does not explicitly require the taxpayer to be a resident of Canada or to have a permanent establishment in the province of British Columbia to be liable to pay the LNG tax. ” Th e particular example was related to this subsec- tion and a non-resident, typically off shore. Can the minister confi rm, or not, that comment — that it doesn’t explicitly require the taxpayer to be a resi- dent of Canada or to have a permanent establishment in the province of B.C. to be liable to pay the tax? Hon. M. de Jong: Th at is correct. B.

Ralston: Some of the liquefaction activities are fairly broad, as I’ve said. One of them, in (d), is “disposing of electrical power generated at the LNG facility. ” Th ere’s also the sale of “intangible personal property” — which could include technology or consulting services — and the right to receive income derived from any of the above. Th en in subsection (

g) it refers to “activities that support construction, administration, operations and mainten- ance of the LNG plant. ”

British Columbia Debates5586 Tuesday, November 25, 2014 Does (

g) mean that profi ts earned by subcontractors are liable to pay the LNG tax? Would they have to fi le the special LNG income return or not? Hon. M. de Jong: Can the member specify subcon- tractors engaged in what activity? I think that’s relevant to the answer. B. Ralston: I’m reading from (g), “in relation to a person who carries out one or more of the activities de- scribed in paragraphs (

a) to (

f) of this defi nition. ” So ac- quiring, owning and, particularly, I would say, the most relevant would be: “(

c) operating all or part of an LNG facility. ” So a person who carries out those “activities that support the construction, administration, operations and maintenance of the LNG plant. ” Th is would appear to describe a fairly broad ambit of potential contractors who would be part of ongoing ad- ministration, operations, maintenance. I think there was an example in the ministry’s explanatory note — for ex- ample, adjacent to an LNG plant, if you had a parking lot. Th at seems intuitively understandable. But I’m just wondering how broad this defi nition is. It would appear, if linking “(

c) operating all or part of an LNG facility” and a person who carries out that ac- tivity by supporting the activities described in (g), that would be fairly broad and cover a number of subcontract- ors, potentially. I’m just wondering: is that the intention? What would be their obligation to pay the tax? [1630] Hon. M. de Jong: I think I understood the member’s question. I was thinking that he was probably referring to how far down the ladder the tax applies insofar as some- one that is subcontracted to participate in the construc- tion of the facility.

Th e tax would not apply in that case because the agency, the subcontractor…. Unless the subcontractor in that case met one of the earlier criteria — acquired or owned liquefi ed natural gas at the LNG facility — the tax would not apply to the subcontractor. Th at’s the diff erentiation that would operate to ensure that the kind of subcontractor that I think that the mem- ber was referring to would not be liable for payment of the tax. B. Ralston: The minister referred to construction, which I think would be a diff erent activity. Th e reference in (

c) is to “operating all or part of an LNG facility, ” so that would be the ongoing operation. Th en, (

g) refers to a person who carries out one or more activities described in (

a) to (f), so that would include (c), obviously. So it’s a person who provides activities that are part of operating all or part of an LNG facility, and then it’s refi ned to the activities that support the construction — not only construction but administration, operations and maintenance of the plant and that are not otherwise described in paragraphs (

a) to (f). It’s even broader than what’s set out in (

c) for, I guess, greater clarity. Th at person, or that taxpayer, would appear to be, then, engaged in liquefaction activities. In contemporary busi- ness, and it’s pretty standard, there are lots of subcon- tractors who may have a role in providing services for the ongoing operation of a huge industrial facility. My reading of it is that these businesses, these taxpay- ers, would be liable to pay the tax because their activ- ity is included in the defi nition of liquefaction activities. Hon.

M. de Jong: I was thinking maybe the best way to get to the root of this is anecdotally or through some practical examples. Th e example we came up with here is if the owner/operator of an LNG facility is operating the cafeteria or the food service, then that clearly is go- ing to be captured. [1635] If, however, a company is brought in for no other pur- pose than to operate the cafeteria within that facility, de- rives income from the operation of that facility within the LNG facility, they would not attract liability under the tax or be responsible for payment of the tax. B.

Ralston: Well, maybe it’s just me and I’m a bit slow, but I don’t quite understand why that wouldn’t be the case. Th e activity is defi ned as “operating all or part of an LNG facility, ” and then it’s very broadly defi ned as part of the “operations and maintenance of the LNG plant. ” Why wouldn’t that…? I’m not understanding why that would not be included as liquefaction activity. Hon. M. de Jong: I believe we’ve stumbled on the an- swer that may help the member. For (

g) to apply — the member has sub (

g) in front of him — the individual cor- poration has to be captured by one of (

a) to (f). In the example I gave, the argument would be that the operator of the cafeteria, if that’s all they’re doing, wouldn’t be cap- tured by any of subs (

a) to (f). B. Ralston: Looking, under the defi nition of “lique- faction activities, ” at sub (f), “acquiring, owning or dis- posing of a right to receive income” from any one of the activities, how far afi eld is that intended to go? For ex- ample, a non-resident third-party marketer of LNG — would that be included in this defi nition and, therefore, subject to the tax? Hon. M. de Jong: I think what the member was per- haps driving at or alluding to was whether or not sub-

section (

f) would operate to capture a marketing agent. Again, I think the answer is that if that agent were cap- tured by one of subs (

a) through (e), probably it would. And if they were not captured by any of the activities de- scribed in subs (

a) through (e), then it would not.

British Columbia DebatesTuesday, November 25, 2014 5587 [1640] B. Ralston: I’m advised that the word “derived, ” which is used in this section, in the context of tax legislation has been interpreted by the Supreme Court of Canada as having a broader meaning than “received, ” such as the equivalent of “arising or accruing, ” and is not limited to income arising or accruing from the operation in ques- tion by a particular taxpayer. Does the minister agree with that defi nition of “derived” which is expressly in this subsection (f)? Hon.

M. de Jong: I am advised that I can advise the committee that the term was chosen by drafters pur- posely and having regard for the judicial consideration that has been aff orded the term in the courts and the highest court. B.

Ralston: An example is offered here which I’m going to pose in the form of a question. “For example, if a third party loans” — I’m sure they meant lends — “money to an LNG project, are the payments received by the lender from the operating income of the LNG facil- ity subject to the LNG tax on the basis that the lender is in receipt of ‘income derived from the operation of an LNG facility’?” And that’s the defi nition that’s set out in

section (f). Hon. M. de Jong: Again, I think the answer is that in a circumstance where that occurred and the recipient was engaged in one of the activities set out in subsections (

a) through (e), the answer would be yes. If they were not en- gaged in one of those activities, the answer would be no. B. Ralston: Th e commentator goes on to say, following that example: “While such a broad

interpretation seems unlikely — especially considering the

interpretation of similar issues under the Income Tax Act Canada, the fed- eral act — the bill’s draft ers clearly intended a broad ap- plication of the LNG tax. Th ey have even indicated that it may apply to income derived from operating a parking lot at the LNG facility. ” Th is is, I suppose, the minister’s opportunity to provide clarity to those who would engage in professional tax plan- ning, either as lawyers or accountants or a combination of the two.

Th e suggestion is that such a broad interpreta- tion is unlikely, and it gives the minister an opportunity to resile from the position he just took if he so chooses. Hon. M. de Jong: I have grown cautious about af- fording advice from any location this far removed from the practice of law. I would say this though. If you are engaged in any of the activities contemplated in sub (

a) through (e), it would be well worth your while to seek professional advice around the degree to which, if at all, the provisions of the LNG Income Tax Act apply. B. Ralston: Just to return again to the example that we spoke of before, the operation of a cafeteria within the LNG plant. Th e example — it’s referred to again, and what I’ d referred to earlier — is: the operation of a park- ing lot in an LNG plant may be captured by the tax. What would be the conceptual distinction, if there is one, between operating a cafeteria in the LNG plant and operating a parking lot adjacent to it? [1645] Hon.

M. de Jong: I don’t think I would make a dis- tinction. I think the example that the member may have been provided with was where the operator of an LNG facility receives income from operating a parking lot at an LNG facility. Th ey’re undertaking an activity in support of the oper- ation of the LNG facility and therefore undertaking a liquefaction activity, diff erentiated, I think, from the company that comes in, has no connection, isn’t engaged in any of the activities described in sub (

a) through (

e) and has merely been subcontracted to operate the park- ing lot. Th at distinction, I think, would hold in both ex- amples. B. Ralston: Forgive me, then, but isn’t that a distinc- tion in form rather than in substance, whereby contrac- tually arranging…? In a certain way, one avoids the tax as opposed to being obliged to pay it? I understood the principle of this

section and the act, generally, to be to avoid such distinctions. Hon. M. de Jong: No, I don’t think I agree, with all due respect to the member, because whilst the decision might be made to contract with another agency to provide that parking service or that food service, there would be, one presumes, income fl owing to the taxpayer who is respon- sible for LNG income tax. Th e income they derive in that manner would be captured and attract the tax. B. Ralston: Subsection (

d) refers to “disposing of elec- tric power generated at the LNG facility. ” Is this intended to refer to the situation where the LNG facility, using nat- ural gas as the feedstock or the source, generates electric- al power in surplus of its needs and sells it, typically, into the grid, as we know has taken place at the Kemano site for some time? Or is it intended to capture the genera- tion of electricity which is used internally to the facility? Hon. M. de Jong: Th e former, the sale of surplus ener- gy into the grid. B. Ralston: In

section (

h) it refers to “restoring, re- claiming or remediating…. ” Th is is at the end of life of an LNG facility. Th e intention is that all the activities up to the remediation of the site — until it’s, presumably, restored in a manner that is not quite greenfi eld but re-

British Columbia Debates5588 Tuesday, November 25, 2014 moves most of the traces of industrial activity — be sub- ject to tax. Is there any provision in the act to obligate a fi rm to undertake that activity? [1650] Certainly, in the oil and gas sector — I know the Auditor General completed a report — there are many orphan facilities where the company that’s responsible ostensibly for the cleanup has not engaged in that activ- ity. Th ere’s no pursuit of them because they’re defunct, or they’ve gone out of business, or they’ve left the juris- diction.

Th ere’s a provision, then, for posting a series of bonds in order to make good, or if that activity isn’t per- formed, then the bond is forfeited. Is this the only mechanism by which the restoration, reclaiming and remediating will be conducted? Or are there other provisions in the statute at a later date? Hon. M. de Jong: I don’t want the committee or the member to be under any misconceptions. I wouldn’t describe sub (

h) as qualifying as a provi- sion that imposes a positive obligation, as it relates to site remediation. I also would not want to leave the committee or the member with the impression that there are provisions in this taxation bill that impose those positive obligations to the extent that they exist elsewhere in environmental protection legislation. This subsection does not perform that task, and I wouldn’t want to leave a diff erent impression. B.

Ralston: Well, presumably by describing it as a li- quefaction activity and, therefore, making it subject to tax, one creates, arguably, an incentive to not do it and to see if you can leave the jurisdiction without making that payment because the activity itself would be subject to tax. Has this part of the act…? Admittedly, it’s hypothetical, because we don’t have a fi nal investment decision just yet on any facility proceeding, and we’re talking about the end of life of an LNG facility, so this is some distance out. But doesn’t it create a disincentive to actually do the work that’s required? Hon.

M. de Jong: I think this subsection has more to do with ensuring that reports and tax returns are fi led right through the closure process — which, by the way, there is, through the closure tax credit, a built-in incentive to do. I’m not sure I agree with the member’s observation about this representing a disincentive. For the reasons I’ve just alluded to, there may well be a strong incentive. Of course, insofar as we were talking about the closure of a facility that has come to the end of its life, the tax, aft er all, is only payable on…. I use the term “profi ts, ” and then there are far more technical terms.

As I say, the available closure tax credit is there as an in- centive which is only going to be available in circumstances where the taxpayer is fi ling the necessary documentation. [1655] B. Ralston: We now turn to a number of descriptions with the LNG moniker as the adjective. What I’ d like the minister to do…. I think it’s reasonably clear, but the dif- ference between an LNG facility, an LNG plant and an LNG source. My understanding, from reading it, is that an LNG plant is the smaller entity, and the LNG facility is the plant and the land surrounding it.

But maybe he can clarify the distinction between a facility, plant and source. Hon. M. de Jong: Th e member is right. Th ere are a number of defi nitions, all very specifi c and all…. Well, not all, but in the case of LNG facility and LNG plant, they are of suffi cient importance that they warrant de- scriptions in specifi c sections, sections 7 and 8. I think I heard the member refer a moment ago to the distinction between the facility and the plant and the sig- nifi cance of one including land and the other not. Th at is a relevant and pertinent distinction between the two.

I am, candidly, a little cautious about trying, off the cuff , to off er a broad, defi nitive distinction in circum- stances where two entire sections of the bill are dedi- cated to highlighting that distinction. But I will agree with the member that as between facility and plant, the one includes the land upon which the facility…. Th at is, LNG facility includes reference to the land upon which an LNG plant is located. B. Ralston: I’m prepared to defer a more detailed dis- cussion to the individual sections themselves, but I didn’t want to skip over them at this particular stage.

With that note, I’ll defer detailed discussion until we get to

section 7 and

section 8. Th e term that I want to address at this point is “LNG facility inlet meter, ” and it includes the defi nition of the feedstock spur line. Th is is the point at which, in rela- tion to the plant — or the land and the plant, the facility — the gas is measured for the purposes of calculating tax. [1700] I’m taking it — again, to return to our previous dis- cussion — that there will be only one facility inlet me- ter that will measure all the intake.

If I’m wrong in that, will there be potentially a number of facility inlet meters, depending on the way in which the plant is constructed and its size and the number of so-called trains that are part of the plant? Hon. M. de Jong: LNG facility inlet meter — I think the member has identifi ed, in part, correctly the signifi - cance of the term. I am told that whilst in most cases there will be a single inlet meter, the defi nition has been draft ed in contemplation of the possibility that there could be more than one for a facility.

British Columbia DebatesTuesday, November 25, 2014 5589 B. Ralston: Next, and this is not the subject of a stand- alone section, is “LNG source. ” It says: “liquefaction ac- tivities carried out at or in respect of a particular LNG facility. ” What is the meaning of that defi nition? Hon. M. de Jong: What I can tell the member and the committee is that the relevance of the term “LNG source” relates to the concept of the LNG source being key to determining income, subject to the act, for the fol- lowing reasons.

Firstly, it clarifi es that the calculation of net operating income, net income and capital investment account all must be tied to the LNG source. Secondly, the tax applies on an LNG-facility-by-LNG-facility basis, and we’ll come to that later in the act. It is a unique feature to this act, to be sure. Th irdly, the tax only applies to income derived from an LNG facility in British Columbia. All of those are tied to the notion of LNG source. B. Ralston: It seems very self-referential, because it refers to liquefaction activities, of which there is a defi n- ition, and LNG facilities.

Why is there a need for a further term, rather than simply speaking of liquefaction activ- ities that are carried out at a given LNG facility, given that those two terms are defi ned? [1705] Hon. M. de Jong: I’m advised that what we have be- fore us is an attempt to remain faithful to a principle and an approach that is contained within the federal Income Tax Act which seeks to tie all income to a source. In this case, remaining consistent with that methodological ap- proach, the desire was to enshrine the concept of LNG source in the same way that the federal Income Tax Act does for other types of income. B.

Ralston: Th e terms that I want to look at next are “net income, ” “net operating income” and “net operat- ing loss. ” Th ese are defi ned and pursued in individual sections further in the act. I don’t want to be seen to be glossing over these, but I won’t ask the minister to defi ne those here. I just didn’t want the sense to be that I was not going to discuss those in detail in further sections. With that proviso, if I can then move to a defi nition of a taxpayer.

I think I asked the minister earlier whether this included non-residents and those without a perma- nent establishment in the province, and I believe the an- swer was yes. So it’s an expansive defi nition of “taxpayer, ” given that that’s “a person who engages in or has income derived from liquefaction activities. ” I wanted to confi rm that again in dealing with this defi nition of “taxpayer. ” Hon. M. de Jong: Y es, I believe the answer remains the same, with the proviso that it is a person who engages in or has income derived from liquefaction activities.

Section 1 approved. On

section 2. B. Ralston: Th is

section adopts certain defi nitions from the federal act, and by the act, I take it it’s the Income Tax Act. It specifi cally excludes in subsection (2) some defi nitions in the federal act. Cost amount, gross revenue and minister are understandable — and the def- inition of “trust. ” Particularly for “cost amount, ” “gross revenue” and “trust, ” how would they then be defi ned if the proposal is to exclude the federal defi nition, since “cost amount” isn’t defi ned in the defi nitions section? I don’t believe “gross revenue” is either, nor is “trust, ” other than the reference that’s just above at the end of

section 1, “does not include a testamentary trust. ” Given that exclusion of the federal act defi nitions, what would the reader or the tax planner look to in order to defi ne those terms? [1710] Hon. M. de Jong: I think I understood the member’s question. Just going through the fi rst couple here, I am advised that under sub (2)(a), because the act doesn’t incorporate or deal with notions of capital gains, the de- fi ned term “cost amount” wasn’t deemed necessary to be imported from the federal act. Under sub (2)(b), “gross revenue, ” I am referred and can refer the member to this

section of this bill, 77(1), which off ers a specifi c defi nition as it relates to the use of the term in that section. I think the member is alive to the logic behind the defi nition of “Minister” being diff erent. B. Ralston: And the defi nition of “trust” in (d)? [1715] Hon. M. de Jong: I apologize for the delay. What I can advise the member and the committee is that the intention is to rely upon the

Document details

Collection	British Columbia — Debates (Hansard)
Citation	20141125pm-Hansard-v18n7
Type	hansard
Volume / chapter	20141125pm Hansard v18n7
Language	en
Format	pdf
Source	PROVINCIAL
Identifier	0b33298bcca603a02cfed546e990d80f604c063e

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