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1997 Legislative Session: 2nd Session, 36th Parliament

FIRST READING

The following electronic version is for informational purposes only.

The printed version remains the official version.

HONOURABLE ANDREW PETTER

MINISTER OF FINANCE AND

CORPORATE RELATIONS AND

MINISTER RESPONSIBLE FOR

INTERGOVERNMENTAL RELATIONS

BILL 3 – 1997

CORPORATION CAPITAL TAX

AMENDMENT ACT, 1997

HER MAJESTY, by and with the advice and consent of the Legislative Assembly of the

Province of British Columbia, enacts as follows:

Section 1 (1) of the Corporation Capital Tax Act, R.S.B.C. 1996, c. 73, is amended

(

a) in the definition of "current accounts payable" by striking out "corporation, partnership or joint venture" wherever it appears and substituting "corporation or partnership" ,

(

b) in the definition of "deferred credit" by striking out "corporation, partnership or

joint venture" wherever it appears and substituting "corporation or partnership" ,

(

c) by repealing the

definitions of "loans and advances made by the partnership or

joint venture to corporations" and "loans and advances to other corporations"

and substituting the following definition:

"loans and advances to corporations" , in relation to a corporation or a partnership,

as the case may be, includes

(

a) accounts receivable, owed to the corporation or partnership by other corporations, that became receivable by the corporation or partnership more than

120 days before the end of its taxation year,

(

b) holdbacks receivable, owed to the corporation or partnership by other

corporations, that became receivable by the corporation or partnership more

than 120 days before the end of its taxation year, and

(

c) bonds, debentures, mortgages and similar obligations of other corporations

acquired by the corporation or partnership more than 120 days before the

end of its taxation year,

but does not include

(

d) any loan or advance made or acquired by the corporation or partnership

within 120 days before the end of its taxation year, unless, in the case of a

loan or advance made or acquired by a corporation,

(

i) the loan or advance is owed to the corporation by an associated

corporation,

(ii) each corporation has a permanent establishment in British Columbia,

and

(iii) the taxation year of each corporation ends on the same date,

(

e) any amount provided to or for the benefit of a savings institution as a result

of which the savings institution is or becomes indebted to the corporation

or partnership, including

(

i) a deposit by the corporation or partnership with the savings institution, and

(ii) a loan or advance evidenced by bank paper or similar paper in use by

a savings institution other than a bank, including certificates of

deposit, bearer deposit notes, swap deposits and banker's acceptances,

(

f) any debt owed to the corporation or partnership by a corporation described

in paragraph 149 (1) (

c) or (

d) of the Income Tax Act (Canada) that is

exempt from tax under

section 4 of this Act, or

(

g) any loan or advance made or acquired by the corporation or partnership as

part of a series of loans and repayments intended to unduly or artificially

reduce the adjusted paid up capital of any corporation; ,

(

d) by adding the following definition:

"savings institution" means

(

a) a bank,

(

b) a credit union,

(

c) an insurance company,

(

d) a trust company, and

(

e) a financial institution that accepts deposits from the public in the normal

course of its business; , and

(

e) in the definition of "trade accounts payable" by striking out "corporation, partnership or joint venture" wherever it appears and substituting "corporation or partnership" .

Section 1 (3) is repealed and the following substituted:

(3) For the purposes of this Act, a corporation has an interest in any partnership in

which it, or a partnership in which it has an interest, is a partner.

Section 1 is amended by adding the following subsections:

(5) Except as otherwise provided in this Act, for the purposes of determining the

carrying value of the assets of a corporation, or of a partnership in which a

corporation has an interest, or any other amount relevant to the computation of a

corporation's adjusted paid up capital for a taxation year, the amounts that must

be used are the amounts reflected in the financial statements of the corporation

for the taxation year that have been

(

a) prepared in accordance with generally accepted accounting principles, and

(

b) presented to the shareholders of the corporation or the members of the

partnership, as the case may be.

(6) Despite subsection (5), the equity and consolidation methods of accounting, other

than the proportionate consolidation method for joint ventures, must not be used

for the purposes referred to in that subsection.

(7) If the financial statements referred to in subsection (5) were not prepared, the

amounts that would have been reflected in those financial statements if they had

been prepared must be used for the purposes referred to in that subsection.

Section 2 is amended

(

a) in subsection (1) by repealing the definition of "corporation" and substituting the

following:

"corporation" includes a partnership; ,

(

b) by repealing subsection (7) and substituting the following:

(7) A corporation

(

a) that otherwise has a permanent establishment in Canada, or

(

b) to which

section 14 applies

is deemed to have a permanent establishment on land it owns, or has a right or

interest in, in Canada. , and

(

c) by repealing subsection (12) and substituting the following:

(12) If a partnership has a permanent establishment at a place, a corporation that has

an interest in the partnership is deemed to have a permanent establishment at that

place.

Section 6 is amended

(

a) by repealing subsection (1),

(

b) in subsection (2) by striking out "coincides with" and substituting "is the same as" ,

and

(

c) by adding the following subsection:

(2.1) The taxation year of a partnership is the same as its fiscal period under the Income

Tax Act (Canada).

Section 7 (1) (

d) is repealed and the following substituted:

(

d) proportionate share, as computed under

section 16 (2), of the partnership

amounts referred to in

section 16 (1) (c), if any, that are applicable to each

of the partnerships in which the bank, trust company or credit union has an

interest.

Section 8 (

e) is repealed and the following substituted:

(

e) proportionate share, as computed under

section 16 (2), of the partnership

amounts referred to in

section 16 (1) (

a) and (c), if any, that are applicable

to each of the partnerships in which the corporation has an interest.

Section 9 (

d) is repealed and the following substituted:

(

d) proportionate share, as computed under

section 16 (2), of the partnership

amounts referred to in

section 16 (1) (

b) and (c), if any, that are applicable

to each of the partnerships in which the corporation has an interest.

Section 10 (

c) and (

d) is repealed and the following substituted:

(

c) in the case of a corporation that is solely engaged in exploration for a

mineral resource, petroleum or natural gas, the amount, if any, by which the

aggregate of the exploration costs incurred by the corporation that are

(

i) included in the cost of capital assets disclosed on the corporation's

balance sheet at the end of that taxation year, and

(ii) not deducted under

section 13 at the end of that taxation year,

exceeds the aggregate of the amounts of amortization, depreciation and

other charges taken into account in computing the corporation's income or

loss for the taxation year or any preceding taxation year in accordance with

generally accepted accounting principles in respect of those exploration

costs, and

(

d) the aggregate of all amounts, each of which is the corporation's proportionate share, as computed under

section 16 (2), of the exploration costs

incurred by a partnership in which the corporation has an interest that would

be deductible under paragraph (

c) of this

section if the partnership were a

corporation.

Section 11 (1) is amended

(

a) by striking out ", prepared using generally accepted accounting principles other than

the equity method of accounting," ,

(

b) by repealing paragraph (

b) and substituting the following:

(

b) if the corporation has an interest in a partnership, the proportionate share,

as computed under

section 16 (2), of the aggregate of the carrying values of

the partnership assets on the partnership's balance sheet, , and

(

c) in paragraph (

c) by striking out "or joint venture" .

Section 11 (2) is amended

(

a) in paragraph (

c) by striking out "other" ,

(

b) by adding the following paragraph:

(f.1) the corporation's loans and advances to partnerships in which the

corporation does not have an interest, but only if

(

i) all the members of the partnership, throughout the corporation's

taxation year, are corporations, and

(ii) the loans and advances would qualify under paragraph (

c) if made to

each member of the partnership; , and

(

c) by repealing paragraph (

g) and substituting the following:

(

g) the aggregate of all amounts, each of which is the corporation's proportionate share, as computed under

section 16 (2), of the carrying value of

investments of a partnership in which the corporation has an interest that

would be investments of a corporation under paragraphs (

a) to (

f) of this

subsection if that partnership were a corporation.

Section 13 is amended

(

a) in subsection (1) by repealing the

definitions of "B.C. development expenditure" ,

"B.C. exploration expenditure" , "B.C. research expenditure" and "eligible

expenditure" and substituting the following:

"B.C. exploration and development expenditure" , with respect to a corporation

for a taxation year, means an expenditure that is

(

a) made by the corporation in the taxation year with respect to the exploration

for, or development of, oil, gas or mining properties located in British

Columbia,

(

b) not incurred to purchase, lease or acquire property, and

(

c) included in the cost of capital assets disclosed on the corporation's balance

sheet at the end of the taxation year;

"B.C. research expenditure" , with respect to a corporation for a taxation year,

means an expenditure

(

a) made by the corporation in the taxation year in respect of research and

development activities carried on in British Columbia, and

(

b) included in deferred development costs disclosed on the corporation's

balance sheet at the end of the taxation year;

"eligible expenditure" , with respect to a corporation for a taxation year, means

(

a) a B.C. exploration and development expenditure of the corporation for the

taxation year,

(

b) a B.C. research expenditure of the corporation for the taxation year, and

(

c) the cost of eligible property and eligible tourism property incurred by the

corporation in the taxation year; , and

(

b) by repealing subsection (3) and substituting the following:

(3) Subject to subsection (4), there may be deducted from the B.C. paid up capital of

a corporation that is not a bank, trust company or credit union, at the end of its

taxation year, the aggregate of

(

a) the amount, if any, by which the aggregate of the eligible expenditures of

the corporation for the taxation year exceeds the aggregate of the amounts

of amortization, depreciation and other charges taken into account in

computing the corporation's income or loss for the taxation year in

accordance with generally accepted accounting principles in respect of

those eligible expenditures,

(

b) the amount, if any, by which the aggregate of the eligible expenditures of

the corporation for the immediately preceding taxation year exceeds the

aggregate of

(

i) the eligible expenditures of the corporation for the immediately

preceding taxation year with respect to property that does not qualify

as eligible property or eligible tourism property of the corporation at

the end of the taxation year, and

(ii) the amounts of amortization, depreciation and other charges taken

into account in computing the corporation's income or loss for the

taxation year and the immediately preceding taxation year in

accordance with generally accepted accounting principles in respect

of the eligible expenditures referred to in this paragraph, and

(

c) all amounts, each of which is the corporation's proportionate share, as

computed under

section 16 (2) of the amounts that would be deductible

under paragraphs (

a) and (

b) by a partnership in which the corporation has

an interest if the partnership were a corporation.

Section 14 is amended

(

a) in subsection (1) in the definition of "Canadian assets" by repealing paragraph (

b) and substituting the following:

(

b) the corporation's proportionate share, as computed under

section 16 (2), of

the assets of any partnership in which the corporation has an interest that are

used or held by the partnership for or in relation to any business carried on

by it through a permanent establishment in Canada in the taxation year of

the partnership; ,

(

b) in subsection (1) by repealing the definition of "corporation's current accounts

payable" and substituting the following:

"corporation's current accounts payable" includes, for a corporation that has an

interest in a partnership, the corporation's proportionate share, as computed

under

section 16 (2), of the current accounts payable of the partnership as at the

end of the taxation year of the partnership. , and

(

c) by adding the following subsection:

(4) For the purposes of this section, a corporation or a partnership that has a

permanent establishment on land that it owns, or that it has a right or interest in,

in Canada, at the end of a taxation year is deemed

(

a) to carry on business during the year through that permanent establishment,

and

(

b) to use or hold the land for or in relation to that business.

Section 16 is repealed and the following substituted:

Partnerships

(1) A corporation that has an interest in a partnership must include, in computing the

corporation's adjusted paid up capital, the corporation's proportionate share of

the following partnership amounts:

(

a) in the case of a corporation to which

section 8 applies, the subordinate

indebtedness of the partnership;

(

b) liabilities of the partnership, whether secured or unsecured, including any

deferred credit but excluding

(

i) current accounts payable, and

(ii) amounts owing by the partnership to the corporation or to other

corporations that have an interest in the partnership;

(

c) the earnings or losses of the partnership accumulated after the corporation

acquired an interest in the partnership.

(2) For the purposes of this Act, a corporation's proportionate share of partnership

amounts must be computed on the same basis that the corporation's share of the

income or loss from the partnership is computed.

(3) The amounts in respect of a partnership, for which a corporation must account for

its proportionate share under this Act for a taxation year, are the amounts

determined

(

a) if the partnership has a taxation year end that falls within the corporation's

taxation year in respect of which the computation of the corporation's

adjusted paid up capital is made, as at the end of that taxation year of the

partnership, or

(

b) if there is no taxation year end of the partnership that falls within that

taxation year of the corporation, as at the taxation year end of the

partnership immediately preceding that taxation year of the corporation.

Section 17 (5) is repealed.

16 Sections 32 (1) and 33 (3) is amended by striking out "60 days" wherever it appears and

substituting "90 days" .

Commencement

(1) Subject to subsection (2), this Act is deemed to have come into force on April 1,

1997 and is retroactive to the extent necessary to give it effect on and after that

date.

(2) Section 16 is deemed to have come into force on March 26, 1997 and is

retroactive to the extent necessary to give it effect on and after that day.

Explanatory Notes

[This Bill amends the Revised Statutes of British Columbia,

1996. The Revised Statutes of British Columbia, 1996 come into force on April

21, 1997.]

SECTION 1: [Corporation Capital Tax Act, amends

section 1 (1)]

(

a) and (

b) removes reference to joint ventures as a result of amendments proposed to

section 16;

(

c) simplifies

definitions of "loans and advances" in relation to corporations and

partnerships and

excludes amounts owing from municipal corporations and Crown corporations, if exempt from tax under

section 4,

clarifies the exclusion of loans or advances acquired by a corporation within 120 days before the end of the taxation year, and

removes reference to joint ventures as a result of amendments proposed to

section 16;

(

d) adds a definition of "savings institution";

(

e) removes reference to joint ventures as a result of amendments proposed to

section 16.

SECTION 2: [Corporation Capital Tax Act, repeals and replaces

section 1 (3)] removes

reference to joint ventures as a result of amendments proposed to

section 16.

SECTION 3: [Corporation Capital Tax Act, amend

section 1 by adding subsections (5) to

(7)] replaces the rule in

section 17 (5) and clarifies which financial statements

are to be used in determining the tax base.

SECTION 4: [Corporation Capital Tax Act, amends

section 2]

(

a) repeals and replaces definition of "corporation" to remove reference to joint

ventures as a result of amendments proposed to

section 16;

(

b) clarifies that a non-resident corporation that owns land in Canada is deemed to

have a permanent establishment on that land;

(

c) repeals and replaces subsection (12) to remove reference to joint ventures.

SECTION 5: [Corporation Capital Tax Act, amends

section 6]

(

a) repeals subsection (1) consequential on the addition of subsection (2.1);

(

b) makes wording consistent with new rule in subsection (2.1);

(

c) clarifies that the taxation year of a partnership is the same as its fiscal period

under the Income Tax Act (Canada).

SECTIONS 6 to 8: [Corporation Capital Tax Act, repeals and replaces sections 7 (1) (d), 8 (

e) and 9 (d)] removes reference to joint ventures as a result of amendments

proposed to

section 16.

SECTION 9: [Corporation Capital Tax Act, repeals and replaces

section 10 (

c) and (d)] clarifies what exploration costs may be deducted from a corporation's

aggregate paid up capital.

SECTION 10: [Corporation Capital Tax Act, amends

section 11 (1)]

(

a) is consequential to the addition of

section 1 (5) to (7);

(

b) is consequential to the new partnership rules in

section 16;

(

c) removes reference to joint ventures as a result of amendments proposed to

section 16.

SECTION 11: [Corporation Capital Tax Act, amends

section 11 (2)]

(

a) is consequential to the new definition of "loans and advances to corporations";

(

b) clarifies which loans and advances to partnerships are eligible for an investment allowance;

(

c) is consequential to the new partnership rules in

section 16.

SECTION 12: [Corporation Capital Tax Act, amends

section 13]

(

a) replaces definition in subsection (1) to harmonize with generally accepted

accounting principles;

(

b) repeals and replaces subsection (3) to clarify what B.C. eligible expenditures

may be deducted in computing a corporation's tax base.

SECTION 13: [Corporation Capital Tax Act, amends

section 11 (2)]

(

a) and (

b) removes reference to joint ventures as a result of amendments proposed to

section 16;

(

c) clarifies that a non-resident corporation that has a permanent establishment on

land owned in British Columbia is subject to tax.

SECTION 14: [Corporation Capital Tax Act, re-enacts

section 16]

is consequential to the addition of

section 11 (2) (f.1), and requires the

inclusion of a corporation's share of partnership liabilities owing to associated corporations;

adds reference to a corporation's share of a partnership's loss in determining the corporation's proportionate share of the partnership amounts;

removes reference to joint ventures to harmonize with generally accepted

accounting principles.

SECTION 15: [Corporation Capital Tax Act, repeals

section 17 (5)] is consequential to the

addition of

section 1 (5) to (7).

SECTION 16: [Corporation Capital Tax Act, amends

section 32 (1) and 33 (3)] extends the

appeal period from 60 to 90 days.

Copyright © 1997: Queen's Printer, Victoria, British Columbia, Canada