First Session, 46th General Assembly

57 Elizabeth II, 2008

BILL 38

AN ACT TO AMEND THE

INCOME TAX ACT, 2000 AND TO REPEAL THE FINANCIAL CORPORATIONS CAPITAL TAX ACT

Received and Read the First Time ...................................................................

Second Reading ..............................................................................................

Committee ......................................................................................................

Third Reading .................................................................................................

Royal Assent ...................................................................................................

HONOURABLE JEROME P.

KENNEDY, Q.C.

Minister

of Finance and President of Treasury Board

Ordered

to be printed by the Honourable House of Assembly

EXPLANATORY NOTE

This Bill would amend the Income Tax Act, 2000 and repeal the Financial Corporations Capital Tax Act

to provide for harmonization of the provincial capital tax with the federal

capital tax, effective October 31, 2008 .

A BILL

AN ACT TO AMEND THE INCOME TAX ACT, 2000

AND TO REPEAL THE FINANCIAL CORPORATIONS CAPITAL TAX ACT

Analysis

INCOME

TAX ACT, 2000

Part II.1 Added

PART

II.1

CAPITAL TAX

ADMINISTRATION

66.1

Interpretation

66.2 Capital tax

payable

66.3 Related

financial

institution

66.4 Investment in related

institutions

66.5 Allocation by

minister

66.6 Non-provincial

amount

taxable

66.7 Short taxation

year

66.8 Application

FINANCIAL

CORPORATIONS

CAPITAL TAX ACT

RSNL1990 cF-9 Rep.

TRANSITIONAL,

CONSEQUENTIAL AND COMMENCEMENT

3. Transitional

4. RSNL 1990 cP-26 Amdt.

Commencement

Be it enacted by the Lieutenant-Governor and

House of Assembly in Legislative Session convened, as follows:

INCOME TAX ACT, 2000

SNL2000 cI-1.1

as amended

1. The Income

Tax Act, 2000 is amended by adding immediately after

section 66 the

following:

PART II.1

CAPITAL TAX ADMINISTRATION

Interpretation

66.1

(1) In

this Part

(a) "authorized foreign bank" means an

authorized foreign bank as defined in

section 2 of the Bank Act ( Canada );

(b) "Canadian banking business" means

the business carried on by an authorized foreign bank through a permanent establishment

in Canada ;

(c) "capital", in the case of a financial

institution other than an authorized foreign bank, means its capital for a

taxation year that is the amount, if any, by which the total at the end of the

year of

(

i) the amount of its long-term debt,

(ii) the amount of its capital stock, or in the

case of an institution incorporated without share capital, the amount of its

members' contributions, retained earnings, contributed surplus and other surpluses,

and

(iii) the amount of its reserves for the year except

to the extent that the reserves were deducted in computing its income under

Part I of the federal Act for the year,

exceeds the total at the end of the year of

the amount of its deferred tax debit balance and the amount of a deficit deducted

in computing its shareholders' equity;

(d) "financial institution" means

(

i) a corporation which is a bank to which the Bank Act ( Canada ) applies,

(ii) a trust and loan corporation including

(

A) a corporation which carries on business, or

holds itself out as a trust corporation,

(

B) a corporation which carries on business, or

holds itself out as a loan corporation, or

(

C) a corporation which carries on business, or

holds itself out as a trust and loan corporation,

and is a company which meets the

requirements of

section 3 of the Trust

and Loan Corporations Act;

(e) "guidelines" means the

risk-weighting guidelines issued by the superintendent;

(f) "long term debt" means a financial

institution's subordinated indebtedness evidenced

by obligations issued for a term of not less than 5 years;

(g) "reserves" means reserves as defined

section 190 of the federal Act;

(h) "subordinated indebtedness" means

subordinated indebtedness as defined in the Bank

Act ( Canada ) with those changes that the circumstances may require;

(i) "superintendent" means the federal Superintendent

of Financial Institutions;

(j) "taxable capital" means the amount,

if any, by which the capital of a corporation for the year exceeds the total

determined under

section 66.4 with

respect to its investments for the year in the financial institutions related

to it; and

(k) "taxable capital employed in the province

for the year" means an amount equal to taxable capital less the non-provincial

amount taxable as prescribed by regulations made under

section 66.6.

(2) Notwithstanding paragraph (1)(c), in the case

of an authorized foreign bank, "capital" means the total of

(a) 10% of the total of all amounts, each of which

is the risk-weighted amount at the end of the year of an on-balance sheet asset

or an off-balance sheet exposure of the bank in respect of its Canadian banking

business that the bank would be required to report under the guidelines if

those guidelines applied and required a report at that time; and

(

b) the total of all amounts, each of which is an

amount at the end of the year in respect of the bank's Canadian banking

business that

(

i) if the bank were a bank listed in

Schedule II

to the Bank Act (Canada), would be

required under the risk-based capital adequacy guidelines issued by the superintendent

and applicable at that time to be deducted from the bank's capital in

determining the amount of capital available to satisfy the superintendent's

requirement that capital equal a particular proportion of risk-weighted assets

and exposures, and

(ii) is not an amount in respect of a loss

protection facility required to be deducted from capital under the superintendent's

guidelines respecting asset securitization applicable at that time.

(3) Subsection 190(2) and sections 190.2 and

190.21 of the federal Act apply to this Part with those modifications that the

circumstances may require.

Capital tax

payable

66.2

(1) Every

corporation that is a financial institution with a permanent establishment in

the province at any time during a taxation year shall pay a tax under this Part

for the year equal to 4% of the amount, if any, by which its taxable capital

employed in the province for the year exceeds its capital deduction for the

year.

(2) Subject to

section 66.3, where the capital of

a corporation is $10 million or less, the capital deduction is $5 million.

(3) Where the capital of a corporation is an

amount other than the amount referred to in subsection (2), the deduction is

nil.

Related financial

institution

66.3

(1) A

corporation

(

a) that is a financial institution at any time

during a taxation year; and

(

b) that was related to another financial institution

at the end of the year

may file with the minister an agreement for

the allocation of capital deduction in the prescribed form on behalf of the

related group of which the corporation is a member.

(2) Where a corporation referred to in subsection

(1) files an agreement for the allocation of the capital deduction, the amount

that does not exceed the $5 million capital deduction shall be allocated among

the members of the related group for the taxation year.

Investment in

related institutions

66.4

(1) A

corporation's investment for a taxation year in a financial institution related

to it is

(

a) in the case of a corporation that was resident

in Canada at any time in the year, the total of all amounts each of which is

the carrying value, or in the case of contributed surplus, the amount, at the

end of the year of an eligible investment of the corporation in the financial

institution; and

(

b) in the case of a corporation that is an authorized

foreign bank, the total of all amounts each of which is the amount at the end

of the year, before the application of risk-weights, that would be required to

be reported under the guidelines if those guidelines applied and required a

report at that time, of an eligible investment of the corporation in the

financial institution that was used or held by the corporation in the year in

the course of carrying on its Canadian banking business or, in the case of an

eligible investment that is contributed surplus of the financial institution at

the end of the year, the amount of the surplus contributed by the corporation

in the course of carrying on that business.

(2) For the purpose of subsection (1), an eligible

investment of a corporation in a financial institution is a share of the capital

stock or long-term debt of the financial institution or a surplus of the

financial institution contributed by the corporation, other than an amount otherwise

included as a share or debt, if the financial institution at the end of the

year is

(

a) related to the corporation;

(

b) resident in Canada or

can reasonably be regarded as using the surplus or the proceeds of the share or

debt in a business carried on by the financial institution through a permanent

establishment in Canada ; and

(

c) has a permanent establishment in the province

at any time in the year.

Allocation by

minister

66.5

(1) The

minister may request a corporation that is a financial institution at any time

during a taxation year and that was related to another financial institution at

the end of the year to file with the minister an agreement referred to in

section

66.3 and, if the corporation does not file the agreement within 30 days after

receiving the request, the minister may allocate an amount among the members of

the related group of which the corporation is a member for the year not

exceeding $5 million.

(2) Sections 190.15 (4), (5) and (6) of the

federal Act apply to a corporation that is a financial institution.

Non-provincial

amount taxable

66.6 The

Lieutenant-Governor in Council may make regulations respecting the method of

computing the non-provincial amount taxable of a financial institution under

this Part.

Short taxation

year

66.7 Where

a taxation year of a corporation is less than 51 weeks, the tax payable determined

under

section 66.2 for the year in respect of the corporation shall be reduced

to that proportion of that amount that the number of days in the year is of 365.

Application

66.8 This

Part shall apply for every taxation year which begins after October 31, 2008 .

FINANCIAL CORPORATIONS

CAPITAL TAX ACT

RSNL1990 cF-9 Rep.

2. The Financial

Corporations Capital Tax Act is repealed.

TRANSITIONAL, CONSEQUENTIAL AND COMMENCEMENT

Transitional

3. Notwithstanding another provision of this Act,

where, on the coming into force of this Act, a financial institution's taxation

year has not ended, that financial institution shall continue to pay tax under

the Financial Corporations Capital Tax

Act for that year only as if that

Act had not been repealed and this Act had not come into force.

RSNL 1990 cP-26

as amended

4. Subsection 3(1) of the Proceedings Against the Crown Act is amended by deleting the

reference " Income Tax Act "

and by substituting the reference " Income

Tax Act, 2000 " and by deleting the word, reference and comma "the

Financial Corporations Capital Tax Act ,".

Commencement

5. This Act shall be considered to have come into

force on October

31, 2008 .

Earl G. Tucker, Queen's Printer