Fourth

Session, 45th General Assembly

Elizabeth II, 2007

BILL 10

AN ACT TO AMEND THE

INCOME TAX ACT, 2000 NO. 2

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

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

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

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

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

HONOURABLE

THOMAS W. MARSHALL, Q.C.

Minister

of Finance and President of Treasury Board

Ordered

to be printed by the Honourable House of Assembly

EXPLANATORY NOTES

Clause 1 of the Bill would amend

section

15 of the Income Tax Act, 2000 to

include a reference to the adoption tax credit.

Clause 2 of the Bill would repeal and

replace

section 20 of the Act. This

section establishes a dividend tax credit and is proposed for amendment as a

result of changes made to the Income Tax

Act ( Canada ) to increase the dividend tax credit applicable to large corporations. The amendment is intended to keep the

provincial dividend tax credit continuing at a rate that is similar to that in

effect before the federal amendment.

Clause 3 of the Bill would amend the

definition of "adjusted income" in

section 21.1 of the Act to ensure that the new federal Universal

Child Care Benefit does not affect the provincial low-income tax reduction.

Clause 4 of the Bill would amend

section 23 of the Act to reorder tax credits so that the credits appear in the

same order as the federal tax credits on which they are based.

Clause 5 of the Bill would amend

section 31.1 of the Act by adding a reference to the adoption tax credit to

ensure that the adoption tax credit will not be prorated on the basis of income

earned in the province with the result that residents of the province will

continue to receive the entire amount of the adoption tax credit.

Clause 6 of the Bill would amend the

definition of "eligible expenditure" contained in paragraph 42(1)(

a) of the Act in order to give legislative effect to an administrative policy

respecting the effect of government assistance and contract payments on

expenditures made in relation to research and developmental activities. The amendment also provides that with respect

to claims filed on or after December 1, 2005 , contract payments

will be excluded from eligible expenditures for research and development

activities in order to prevent multiple tax credits being claimed by taxpayers

in respect of the same expenditure.

Clause 7 of the Bill would amend

section 44 of the Act by introducing technical changes which will clarify the

intent of the

section and achieve greater consistency with the equivalent

federal provision.

Clause 8 of the Bill would amend

subsection 89(5) of the Act to permit the negotiation of settlement agreements

where a person or corporation is subject to taxation in the province and in

another province or territory.

Clause 9 of the Bill would provide

for the retroactive effect of the amendments at clauses 2, 3, 4, 5, 6 and 7.

A BILL

AN ACT TO AMEND THE

INCOME TAX ACT, 2000 NO. 2

Analysis

S.15 Amdt.

Unused tuition and education amounts

2. S.20 R&S

Dividend tax credit

S.21.1 Amdt.

Low income reduction

S.23 Amdt.

Ordering of credits

S.31.1 Amdt.

Pro-rating where income earned outside province

S.42 Amdt.

Research and development tax credit

S.44 Amdt.

Foreign tax credits

S.89 Amdt.

Collection agreement

Commencement

Be it enacted by the Lieutenant-Governor and

House of Assembly in Legislative Session convened, as follows:

SNL2000 cI-1.1

as amended

1. (1) Paragraph 15(1)(

b) of the Income Tax Act, 2000 is amended by

striking out the word and number "or 17" and by adding immediately

after the number "12" a comma and the numbers and word "17 or

17.1".

(2) Subsection 15(2) of the Act is amended by

striking out the word and number "or 17" and by adding immediately

after the number "12" a comma and the numbers and word "17 or

17.1".

Section 20 of the Act is repealed and the following substituted:

Dividend tax

credit

20. For

the purpose of computing the tax payable under this Part for a taxation year by

an individual who was resident in the province on the last day of the taxation

year, there may be deducted an amount equal to the total of

(a) 25% of any amount required under subparagraph

82(1)(b)(

i) of the federal Act to be included in computing the individual's income

for the year; and

(b) 21.43% of any amount required under

subparagraph 82(1)(b)(ii) of the federal Act to be included in computing the

individual's income for the year.

3. Paragraph 21.1(1)(

a) of the Act is repealed and

the following substituted:

(a) "adjusted income" of an individual

for a taxation year means the total of all amounts, each of which would be the

income for the year of the individual and the individual's qualified relation

for the year, if any, calculated as if no amount was included in respect of

(

i) a gain from a disposition of property to which

section 79 of the federal Act applies in computing that income, or

(ii) benefits under the Universal Child Care Benefit Act ( Canada )

and the income of a person who is a

non-resident of Canada at any time in a taxation year is considered to be equal to the

amount that would, if the person were resident in Canada

throughout the year, be the person's income for the year;

4. (1) Paragraph 23(2)(

a) of the Act is repealed

and the following substituted:

(a) subsections 9(1) and (2);

(2) Paragraph 23(2)(b.1) of the Act is repealed

and the following substituted:

(b.1) subsection 9(3);

(b.2)

section 17.1;

Section 31.1 of the Act is amended by adding

immediately after the words, numbers and brackets "subsection 9(3) and sections"

the number "17.1" and a comma.

6. (1) Paragraph 42(1)(

a) of the Act is repealed

and the following substituted:

(a) "eligible expenditure" means an

expenditure in respect of scientific research carried out in the province made

after 1995 by a taxpayer with a permanent establishment in the province that is

a qualified expenditure under subsection 127(9) of the federal Act without

reference to paragraph (

d) of the definition of that term in that Act but, with

respect to paragraph (

h) of the definition of that term in that Act,

(

i) in the case of research and development tax

credit claims filed under subsection 37(11) of the federal Act prior to December 1, 2005 , eligible expenditures shall not be reduced by government

assistance and contract payments,

(ii) in the case of research and development tax

credit claims filed under subsection 37(11) of the federal Act on or after December

1, 2005, eligible expenditures shall not be reduced by government assistance except

with respect to Harmonized Sales Tax and Goods and Services Tax input tax

credits, considered under subsection 248(16) of the federal Act to be

assistance from a government, claimed after December 31, 2003, and

(iii) in the case of research and development tax

credit claims filed under subsection 37(11) of the federal Act on or after December

1, 2005, eligible expenditures shall be reduced by contract payments received

after December 31, 2003; and

(2) Subsection 42(1.1) of the Act is amended by

renumbering it as (1.2) and adding immediately before that subsection the following:

(1.1) For the purpose of subparagraph (1)(a)(ii),

reference to "Harmonized Sales Tax" means the harmonized sales tax defined

in the

Schedule to the Tax Agreement Act

and reference to "Goods and Services Tax" means the tax imposed or

levied under

Part IX of the Excise Tax

Act (Canada).

7. (1) Subsection 44(1) of the Act is amended

by striking out the words "has claimed a deduction" and substituting

the words "may deduct an amount".

(2) Subparagraph 44(1)(a)(ii) of the Act is

repealed and the following substituted:

(ii) that proportion that the corporation's taxable

income earned in the year in the province is of the corporation's taxable income

earned in the year; or

(3) Paragraph 44(1)(

b) of the Act is amended

(

a) by striking out the word "a"

immediately following the words "the part of" and substituting the

word "any"; and

(

b) by striking out the words, numbers and

brackets "of the deduction claimed by the corporation under subsection

126(1) of the federal Act that" and substituting the words, numbers and

brackets "deductible by the corporation under subsection 126(1) of the

federal Act in respect of that country that".

8. Subsection 89(5) of the Act is repealed and the

following substituted:

(5) The minister may negotiate and accept a

settlement to relieve the effect of multiple taxation and, for the purposes of

this section, multiple taxation occurs where

(

a) a person who is subject to income tax under

section 6

(

i) is also subject to income tax in another

province or territory, and

(ii) as a result of a conflict of law or a disagreement

between the province and another province or territory respecting an

interpretation

of law or fact, the aggregate of the person's income earned in the year in each

province or territory as determined by the law of each province or territory

exceeds the person's income earned in the year in a province; or

(

b) a corporation that is subject to tax under

section 40

(

i) is also subject to tax in another province or

territory, and

(ii) as a result of a conflict of law or a

disagreement between the province and another province or territory respecting

an

interpretation of law or fact, the aggregate of the corporation's taxable

income earned in the year in each province or territory as determined by the

law of each province or territory exceeds the corporation's taxable income

earned in the year in a province.

Commencement

(1) Sections 2 and 5 of this Act are

considered to have come into force on January 1, 2006 .

(2) Section 3 of this Act is considered to have

come into force on July 1, 2006 .

(3) Sections 4, 6 and 7 of this Act are considered

to have come into force on January 1, 2004 .

Earl G. Tucker, Queen's Printer