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2005 Legislative Session: 6th Session, 37th Parliament

FIRST READING

The following electronic version is for informational

purposes only.

The printed version remains the official version.

HONOURABLE COLIN HANSEN

MINISTER OF FINANCE

BILL 7 – 2005

INCOME TAX AMENDMENT ACT, 2005

HER MAJESTY, by and with the advice and consent of the Legislative Assembly of the Province of British Columbia, enacts as follows:

Section 1 of the Income Tax Act , R.S.B.C. 1996, c. 215, is amended by adding the following subsection:

(4.1) For the purposes of this Act, a series of transactions or events is deemed to include any related transactions or events completed in contemplation of the series.

Section 4.2 is amended

(

a) in subsection (1) by striking out " sections 4.3 " and substituting " sections 4.3, 4.31 ", and

(

b) in subsection (3) by striking out " sections 4.72, " and substituting " sections 4.301, 4.72, ".

3 The following

section is added:

BC tax reduction credit

4.301 For the purpose of computing the tax payable under this Act for a taxation year by an individual, there may be deducted the amount determined by the formula

A – B

where

A is $360, and

B is 3.6% of the amount, if any, by which the individual's income for the year exceeds $16

Section 4.5 is amended

(

a) in subsection (1) by striking out the formula and substituting the following:

A x [(B – C) + D]

(

b) in subsection (1) in the description of C by striking out " the smaller of $1 637 " and substituting " the smaller of $1 772 ",

(

c) in subsection (1) by striking out the description of D and substituting the following:

D is the total of all amounts each of which is, in respect of a dependant of the individual, the smaller of $5 000 and the amount determined by the formula

E – F

where

E is the amount used in the formula in

section 118.2 (1) of the federal Act for E in computing the individual's deduction under that

section for the year, and

F is the smaller of $1 772 and 3% of the dependant's income for the year. , and

(

d) by adding the following subsection:

(3) In this section, "dependant" , in respect of the dependant of an individual for a taxation year, has the same meaning as in

section 118 (6) of the federal Act, but does not include a child of the individual who has not attained the age of 18 years before the end of the taxation year.

Section 4.52 (1) is repealed and the following substituted:

(1) In this section, "relevant provision" means the following:

(

a) section 4.1 (1) [amount of tax payable] ;

(

b) section 4.3 (1) [personal credits] ;

(

c) section 4.31 [age credit] ;

(

d) section 4.5 [medical expense credit] ;

(

e) section 4.51 [credit for mental or physical impairment] .

Section 4.52 (1) (

d) is repealed and the following substituted:

(

d) except in respect of the 2004 taxation year, the descriptions of C and F in

section 4.5 (1) [medical expense credit] ; .

Section 4.52 (1) is amended by adding the following paragraph:

(b.1) except in respect of the 2005 taxation year,

section 4.301 [BC tax reduction credit] ; .

Section 4.71 (5) is amended by striking out " and

section 14 (3) (b) ".

Section 4.73 is amended by adding " 4.301 [BC tax reduction credit] , " after "

section 4.3 [personal credits] , ".

Section 4.74 (

b) is amended by adding " 4.301 [BC tax reduction credit] , " after " sections 4.3 [personal credits] , ".

Section 4.75 (1) and (2) is amended by adding " 4.301, " after " sections 4.3, ".

Section 4.76 (1) (b) (ii) is amended by adding "4.301 [BC tax reduction credit]," after "sections 4.3 [personal credits],".

Section 4.77 is amended by adding the following paragraph:

(a.1)

section 4.301 [BC tax reduction credit] ; .

Section 4.79 (3) is amended by adding the following paragraph:

(a.1)

section 4.301 [BC tax reduction credit] ; .

Section 4.87 is amended by striking out " the deduction under

section 4.72 of this Act [supplementary credit for 2000 taxation year] . " and substituting " the deductions under sections 4.301 [BC tax reduction credit] and 4.72 [supplementary credit for 2000 taxation year] of this Act. "

Section 14 is amended

(

a) by adding the following subsection:

(1.1) In this section, "tax-exempt income" has the same meaning as in

section 126 (7) of the federal Act. ,

(

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

(3) A corporation may deduct from the tax otherwise payable under this Act for the taxation year the aggregate of the amounts determined under subsection (3.1) if

(

a) the corporation maintained a permanent establishment in British Columbia at any time in the taxation year,

(

b) the corporation's income for the year includes foreign investment income, and

(

c) the corporation has claimed a deduction under

section 126 (1) of the federal Act in respect of the foreign investment income.

(3.1) The amount deductible under subsection (3), in respect of each country other than Canada, is the smaller of

(

a) the amount determined by the following formula:

BCTI

13.5% x FII x

where

BCTI

the corporation's taxable income earned in the year in British Columbia;

FII

the corporation's foreign investment income for the year from sources in that other country;

the corporation's taxable income earned in the year, and

(

b) the amount determined by the following formula:

BCTI

(NBIT – AD) x

ATI

where

the amount deductible by the corporation for the year under

section 126 (1) of the federal Act in respect of that other country;

ATI

the corporation's taxable income earned in the year in all provinces, as determined in accordance with

section 124 (4) of the federal Act;

BCTI

the corporation's taxable income earned in the year in British Columbia;

NBIT

the non-business-income tax paid by the corporation for the year to the government of that other country, as determined under the definition of "non-business-income tax" in

section 126 (7) of the federal Act, except any tax that may reasonably be regarded as having been paid in respect of income from a share of the capital stock of a foreign affiliate of the corporation. , and

(

c) by repealing subsection (5) and substituting the following:

(5) For the purposes of this section,

(

a) the government of a country other than Canada includes the government of a state, province or other political subdivision of that country,

(

b) if a corporation's income for a taxation year is in whole or in part from sources in more than one country other than Canada, subsection (3.1) must be read as providing for separate deductions in respect of each of the countries other than Canada, and

(

c) if any income from a source in a particular country would be tax-exempt income but for the fact that a portion of the income is subject to an income or profits tax imposed by the government of a country other than Canada, the portion is deemed to be income from a separate source in the particular country.

Section 16 (5) is amended

(

a) in paragraphs (

a) and (

b) of the definition of "business limit" by striking out " $300 000 " and substituting " $400 000 ", and

(

b) in the definition of "specified partnership income" by striking out " for the first amount, read as "$300 000" and, for the second amount, read as "$822". " and substituting " for the first amount, read as "$400 000" and, for the second amount, read as "$1 096". "

Section 25.1 (1) is amended

(

a) in paragraph (f.2) (

i) of the definition of "excluded expense" by striking out " January 1, 2005, " and substituting " January 1, 2006, ", and

(

b) in paragraph (f.2) (ii) of the definition of "excluded expense" by striking out " December 31, 2004 " and substituting " December 31, 2005 " and by striking out " January 1, 2006 " and substituting " January 1, 2007 ".

Section 25.1 (1) is amended in paragraph (

b) of the definition of "qualified mining exploration expense" by striking out " August 1, 2006 " and substituting " January 1, 2017 ".

Section 29 is repealed and the following substituted:

Application of federal provisions —

returns of income and assessments of tax

(1) The following sections of the federal Act apply for the purposes of this Act:

(

a) section 150 [returns] ;

(

b) section 150.1 (1) to (4) [electronic filing] ;

(

c) section 151 [estimate of tax] ;

(

d) subject to this section,

section 152 (1), (1.2) and (2) to (8) [assessment] .

(2) In applying

section 152 (1) (

b) of the federal Act for the purposes of this Act,

section 152 (1) (

b) must be read as follows:

(

b) the amount of tax, if any, deemed by the following sections to be paid or deducted on account of the taxpayer's tax payable under this Act for the year:

(i)

section 8 (5) [refundable sales tax credit] ;

(ii)

section 21 (10) [small business venture capital tax credit] ;

(iii)

section 25 (5) [qualifying environmental trusts tax credit] ;

(iv)

section 25.1 (5) [mining exploration tax credit] ;

(

v) section 84 [film and television tax credit] ;

(vi)

section 98 (2) [scientific research and experimental development tax credit] .

(3) In applying

section 152 (4.2) of the federal Act for the purposes of this Act,

section 152 (4.2) (

d) must be read as follows:

(

d) redetermine the amount, if any,

(

i) deemed by the following sections of this Act to be paid or deducted on account of the taxpayer's tax payable under this Act for the year:

(A)

section 8 (5) [refundable sales tax credit] ;

(B)

section 21 (10) [small business venture capital tax credit] ;

(C)

section 25 (5) [qualifying environmental trusts tax credit] ;

(

D) section 25.1 (5) [mining exploration tax credit] , or

(ii) deemed by

section 10 (3) [BC Family Bonus] of this Act to be an overpayment on account of the taxpayer's liability under this Act for the year.

Section 29 (2) is amended by adding the following subparagraph:

(vii)

section 113 [book publishing tax credit] .

Section 29 is amended by adding the following subsections:

(2.1) In applying

section 152 (4) of the federal Act for the purposes of this Act, that

section must be read as including the following paragraph:

(

c) in respect of a taxpayer that is a corporation, the assessment, reassessment or additional assessment is made

(

i) as a consequence of a taxing authority

(

A) determining or redetermining, under a law of a province that imposes a tax similar to the tax imposed under this Act, the corporation's taxable income earned in the province for the year if that determination or redetermination changes the proportion that the corporation's taxable income earned in the province for the year is to the corporation's taxable income for the year as calculated under the law of that province, or

(

B) allocating or reallocating, under the Corporation Capital Tax Act , the corporation's net paid up capital for the year to a jurisdiction other than British Columbia, and

(ii) before the day that is the later of

(

A) the latest day on which an assessment, reassessment or additional assessment may otherwise be made under this Act, and

(

B) one year after the day that is the earlier of

(

I) the day that the minister receives notification from the taxing authority of the action referred to in subparagraph (i), and

(II) the day that the minister receives notification from the corporation of the action referred to in subparagraph (i).

(2.2) In applying

section 152 (4.01) of the federal Act for the purposes of this Act, the reference in that

section to "paragraph (4) (

a) or (b)" must be read as "paragraph (4) (a), (

b) or (c)" and that

section must be read as including the following paragraph:

(

c) where paragraph (4) (

c) applies to the assessment, reassessment or additional assessment, determining or redetermining the corporation's taxable income earned in the year in British Columbia, as defined in

section 13.3 of this Act.

Section 29 is amended by adding the following subsection:

(4) In applying

section 152 (6) of the federal Act for the purposes of this Act, the reference in paragraph (

d) of that

section to "subsection 127 (5)" must be read as a reference to

section 4.721 (2) of this Act.

Section 29 (4) is amended by adding " , 99 (2) or 105 (1) " after "

section 4.721 (2) ".

Section 34 is amended by striking out " 161 (1) to (7), (9) and (11) and 161.1 " and substituting " 161 (1) to (7), (9) and (11), 161.1 and 161.2 ".

Section 38 (1) is amended

(

a) by striking out " (c), (d), (

e) and (f) " and substituting " (

c) and (

d) to (g) ", and

(

b) by striking out " and " at the end paragraph (c), by adding " , and " at the end of paragraph (

d) and by adding the following paragraph:

(

e) a reference in

section 163 (2) (

g) of the federal Act

(

i) to "subsection 125.5 (3)" were to

section 113 of this Act, and

(ii) to "the information provided in the return filed for the year pursuant to that subsection" were to "the information provided in the application filed for the year under

section 114 of this Act".

Section 62 is amended by striking out "

Section 239 (1) " and substituting "

Section 239 (1) and (1.1) ".

Section 80 is amended

(

a) in subsection (3) by striking out " subsection (2) (a), " and substituting " subsections (2) (

a) and (4) (a), ", and

(

b) by adding the following subsections:

(4) In addition to the tax credit that may be claimed under subsection (2) but subject to subsection (5), the amount of the tax credit that may be claimed by a qualifying corporation under this

section is,

(

a) in the case of a production that is an interprovincial co-production, 10% of the corporation's qualified BC labour expenditure for the taxation year in respect of the production multiplied by the percentage of the copyright in the production that is owned by the corporation, or

(

b) in any other case, 10% of the corporation's qualified BC labour expenditure for the taxation year in respect of the production.

(5) For a qualifying corporation to claim a tax credit in the amount calculated under subsection (4) in respect of an eligible production, the following rules apply:

(

a) in addition to the other requirements in subsection (1), principal photography of the production must begin after December 31, 2004 and before April 1, 2006;

(

b) the references to "March 31, 1998" in the definition of "BC labour expenditure" in

section 79 (1) must be read as "December 31, 2004";

(

c) despite

section 79 (2) (a), if the production is intended for television broadcast as a series and principal photography of a cycle of the series begins before January 1, 2005, all the episodes of the cycle for which principal photography begins after December 31, 2004 are to be considered a single production;

(

d) despite

section 79 (2) (a), if the production is intended for television broadcast as a series and principal photography of a cycle of the series begins before April 1, 2006 and is completed after March 31, 2006,

(

i) all the episodes of the cycle are to be considered a single production, if there are no more than 13 episodes in that cycle,

(ii) all the episodes of the cycle are to be considered a single production, if there are more than 13 episodes in that cycle and principal photography of each episode of that cycle begins before April 1, 2006, or

(iii) the greater of

(

A) all the episodes of the cycle for which principal photography of those episodes begins before April 1, 2006, and

(

B) the first 13 episodes of the cycle

are to be considered a single production, if there are more than 13 episodes in that cycle and principal photography of at least one episode of that cycle begins after March 31,

Section 82.1 is amended by adding the following subsections:

(5) In addition to the tax credit that may be claimed under subsection (2) but subject to subsection (6), the amount of the tax credit that may be claimed by an accredited production corporation under this

section is 7% of the accredited qualified BC labour expenditure of the corporation for the taxation year in respect of the accredited production.

(6) For an accredited production corporation to claim a tax credit in the amount calculated under subsection (5) in respect of an accredited production, the following rules apply:

(

a) in addition to the other requirements in subsection (1), principal photography of the production must begin after December 31, 2004 and before April 1, 2006;

(

b) despite paragraph (

a) in the definition of "accredited BC labour expenditure" in

section 79 (1), the references to "March 31, 1998" in the definition of "BC labour expenditure" in

section 79 (1) must be read as "December 31, 2004".

Transitional Provision

Transitional – sections 4.71 and 14 of the Income Tax Act

(1) In this section, "corporation" and "taxation year" have the same meaning as in the Income Tax Act .

(2) Despite sections 1 and 2 of this Act, sections 4.71 (5) and 14 of the Income Tax Act , as those sections of the Income Tax Act read on the date before this

section comes into force, continue to apply to a corporation's taxation year that began before the date this

section comes into force.

Commencement

31 The provisions of this Act referred to in column 1 of the following table come into force as set out in column 2 of the table:

Item

Column 1

Provisions of Act

Column 2

Commencement

Anything not elsewhere covered by this table

The date of Royal Assent

Sections 2 and 3

January 1, 2005

Section 4

By regulation of the Lieutenant Governor in Council and, when brought into force by regulation,

section 4 is deemed to have come into force on January 1, 2004 and is retroactive to the extent necessary to give it effect on and after that date

Section 5

January 1, 2004

Section 6

By regulation of the Lieutenant Governor in Council and, when brought into force by regulation,

section 6 is deemed to have come into force on January 1, 2004 and is retroactive to the extent necessary to give it effect on and after that date

Section 7

January 1, 2005

Section 8

By regulation of the Lieutenant Governor in Council, which may be made retroactive to a date on or after January 1, 2006, and if made retroactive is deemed to have come into force on the date specified in the regulation and is retroactive to the extent necessary to give it effect on and after that date

Sections 9 to 15

January 1, 2005

Section 16

By regulation of the Lieutenant Governor in Council, which may be made retroactive to a date on or after January 1, 2006, and if made retroactive is deemed to have come into force on the date specified in the regulation and is retroactive to the extent necessary to give it effect on and after that date

Section 17

January 1, 2005

Section 18

January 1, 2005

Section 20

January 1, 2000

Section 21

October 1, 2002

Section 22

May 13, 2004

Section 23

July 31, 2001

Section 24

April 10, 2003

Section 25

July 1, 2003

Section 26

October 1, 2002

Sections 28 and 29

January 1, 2005

Section 30

By regulation of the Lieutenant Governor in Council, which may be made retroactive to a date on or after January 1, 2006, and if made retroactive is deemed to have come into force on the date specified in the regulation and is retroactive to the extent necessary to give it effect on and after that date

Explanatory Notes

SECTION 1: [Income Tax Act,

section 1] deems related transactions or events to be part of

a series of transactions or events.

SECTION 2: [Income Tax Act,

section 4.2] provides for the tax from which the non-

refundable BC tax reduction credit may be deducted.

SECTION 3: [Income Tax Act,

section 4.301] establishes a tax credit of $360 that is reduced

for individuals with an income in excess of $16 000.

SECTION 4: [Income Tax Act,

section 4.5] in accordance with changes to the Income Tax

Act (Canada), provides for an increase in the amount that a taxpayer may claim

in respect of the medical expenses incurred on behalf of a dependant.

SECTION 5: [Income Tax Act,

section 4.52] re-enacts the provision to facilitate further

amendments to the provision by this Bill.

SECTION 6: [Income Tax Act,

section 4.52] continues the indexing of the medical expense

credit threshold amounts.

SECTION 7: [Income Tax Act,

section 4.52] provides for the indexing of amounts expressed

in dollars in the proposed

section 4.301 of the Act.

SECTION 8: [Income Tax Act,

section 4.71] deletes a reference to

section 14 as a result of

the proposed amendments made to

section 14 of the Act by this Bill.

SECTION 9: [Income Tax Act,

section 4.73] prevents a trust from making a deduction under

the BC tax reduction credit in computing the tax payable by a trust for a

taxation year.

SECTION 10: [Income Tax Act,

section 4.74] restricts the amount of the BC tax reduction

credit that can be claimed in the year of bankruptcy to the following:

the part of the deduction the individual is entitled to for the taxation year;

an amount that would not exceed the amount deductible if the individual had not become bankrupt in the year.

SECTION 11: [Income Tax Act,

section 4.75] restricts the amount of BC tax reduction credit

to a portion of the credit equal to the portion of the taxpayer's income for the

year earned in British Columbia.

SECTION 12: [Income Tax Act,

section 4.76] restricts the amount of the credit available to

an individual who is not resident in Canada for part of the taxation year.

SECTION 13: [Income Tax Act,

section 4.77] prevents an individual who at no time in the

taxation year is resident in Canada from deducting the BC tax reduction credit.

SECTION 14: [Income Tax Act,

section 4.79] provides for the order in which the BC tax

reduction credit may be deducted.

SECTION 15: [Income Tax Act,

section 4.87] prevents a trustee in bankruptcy, on behalf of

an individual who is a bankrupt, from making a deduction under the BC tax

reduction credit in computing the tax payable in respect of the estate of the

bankrupt for the taxation year.

SECTION 16: [Income Tax Act,

section 14]

(

a) adds a definition,

(

b) clarifies the computation of the non-business foreign tax credit for corporations as an aggregate of the amounts determined in respect of each country other than Canada, and

(

c) adds rules of construction parallel to the Income Tax Act (Canada).

SECTION 17: [Income Tax Act,

section 16] increases from $300 000 to $400 000 the income

threshold below which small businesses can pay a lower rate of tax.

SECTION 18: [Income Tax Act,

section 25.1] excludes from the calculation of the mining

exploration tax credit Canadian exploration expenses incurred or deemed to

have been incurred in 2005 and renounced in accordance with agreements to

issue flow-through shares.

SECTION 19: [Income Tax Act,

section 25.1] extends the period in which an expense must

be incurred under the definition of "qualified mining exploration expense".

SECTION 20: [Income Tax Act,

section 29]

re-enacts subsection (1);

clarifies references to the British Columbia Income Tax Act for the purposes of

section 152 (1) (

b) of the Income Tax Act (Canada), as that

section applies for the purposes of the British Columbia Income Tax Act ;

re-enacts as subsection (3) the existing subsection (1.1), enacted by the Provincial Revenue Statutes Amendment Act, 2003 , which was by error added to

section 29 when

section 29 had no subsections.

SECTION 21: [Income Tax Act,

section 29] requires the minister to determine, after

examining a taxpayer's return of income for a taxation year, the amount of the

book publishing tax credit, which is deemed to be paid or deducted on account

of the taxpayer's tax payable under the Act.

SECTION 22: [Income Tax Act,

section 29] consequential to the amendments in

section 20

of this Bill arising from the error referred to in the explanatory note to that

section, re-enacts subsections (1.01) and (1.02), enacted by the Provincial

Revenue Statutes Amendment Act, 2004 , as subsections (2.1) and (2.2) respectively,

which

in respect of a taxpayer that is a corporation, provide for an extended period for further assessments of tax, interest or penalties after the end of the normal reassessment period if there is an action taken by a taxing authority that affects the liability of the corporation under the Act;

restrict the scope of the further assessments to the allocation or reallocation of the corporation's taxable income earned in the year in British Columbia.

SECTION 23: [Income Tax Act,

section 29] consequential to the amendments in

section 20

of this Bill arising from the error referred to in the explanatory note to that

section, re-enacts as subsection (4) the existing subsection (2), enacted by the

Taxation Statutes Amendment Act, 2001 , which adds, to a

section incorporating

provisions of the Income Tax Act (Canada) relating to returns and reassessment,

a provision to ensure that certain references in the Income Tax Act (Canada) to

the federal investment tax credit are read as references to the BC mining flow-

though share tax credit.

SECTION 24: [Income Tax Act,

section 29] consequential to the amendments in

section 20

of this Bill arising from the error referred to in the explanatory note to that

section, re-enacts an amendment enacted by the Provincial Revenue Statutes

Amendment Act, 2003 , which allows a taxpayer to file a prescribed form to

carry back scientific research and experimental development tax credits or

manufacturing and processing tax credits rather than filing an amended return.

SECTION 25: [Income Tax Act,

section 34] applies a provision of the Income Tax Act

(Canada) that no interest is payable on an amount specified in a notice for a

specified period if the taxpayer pays the amount in full before the end of the

period.

SECTION 26: [Income Tax Act,

section 38] applies the penalty provisions of the Income Tax

Act (Canada) for making misleading statements and omissions to information

provided in an application for the book publishing tax credit under the British

Columbia Income Tax Act .

SECTION 27: [Income Tax Act,

section 62] adds offences for specified acts or omissions that

result in a person obtaining or claiming a refund or credit

to which the person or any other person is not entitled under the Act, or

in an amount greater than the amount to which the person or another person is entitled.

SECTION 28: [Income Tax Act,

section 80] provides for an additional basic tax credit in the

amount of 10% of the qualified BC labour expenditure in respect of eligible

productions for which principal photography begins after December 31, 2004

and before April 1, 2006.

SECTION 29: [Income Tax Act,

section 82.1] provides for an additional production services

tax credit in the amount of 7% of the accredited qualified BC labour expenditure

in respect of accredited productions for which principal photography

begins after December 31, 2004 and before April 1, 2006.

SECTION 30: [Transitional, sections 4.71 and 14 of the Income Tax Act] continues the

application of sections 4.71 and 14 of the Income Tax Act , as they read before

the proposed amendments made by this Bill, to taxation years that began before

the proposed amendments come into force.

Copyright

© 2005: Queen's Printer, Victoria, British Columbia, Canada