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2014 Legislative Session: 3rd Session, 40th Parliament

FIRST READING

The following electronic version is for informational purposes only.

The printed version remains the official version.

Certified correct as passed Third Reading on the 27th day of November, 2014

Craig James, Clerk of the House

HONOURABLE MICHAEL DE JONG

MINISTER OF FINANCE

BILL 6 – 2014

LIQUEFIED NATURAL GAS INCOME TAX ACT

Contents

Part 1 –

Interpretation

Definitions

Definitions in federal Act and federal regulation

References in applicable provisions of federal Act and federal regulation

Provisions of Act applied and interpreted consistent with federal Act

Reference aids in relation to federal Act and federal regulation

References to income, loss and capital investment property

LNG facility

LNG plant

Taxation year

Fiscal period

Application of federal provisions – relationships between persons

Assistance from government and repayment of assistance

Trusts and beneficiaries

Series of transactions

Limitation respecting inclusions, deductions and amounts paid

Application of other federal provisions

Part 2 – Application of This Act and Liability for Tax

Application of this Act

Tax on net income

Deduction from tax on net income

Tax pool balance

Tax on net operating income

Exemptions from tax

Part 3 – Computation of Net Operating Income or Net Operating Loss

Division 1 – Basic Rules

Net operating income

Net operating loss

Income or loss from a source

Division 2 – Income or Loss from a Business or Property

Income or loss for a taxation year

Application of federal provisions – income or loss from business or property

Valuation of inventory

Application of

section 11 of federal Act – reference to taxation year

Application of

section 12 of federal Act – income inclusions

Other income inclusions

Income exclusions

Application of

section 18 of federal Act – general limitations on deductions

Other limitations on deductions

Application of

section 19.01 of federal Act – limitation re advertising expense in periodicals

Application of

section 19.1 of federal Act – limitation re advertising expense on broadcasting undertaking

Application of

section 20 of federal Act – deductions permitted in computing income from business or property

Deduction of repaid financial incentives

Application of

section 22 of federal Act – sales of accounts receivable

Application of

section 23 of federal Act – sale of inventory

Application of

section 34.1 of federal Act – additional business income

Application of

section 34.2 of federal Act – corporate partners – income adjustment

Application of

section 34.3 of federal Act – corporate partners – income shortfall adjustment

Division 3 – Other Sources of Income

Other sources of income

Division 4 – Deductions in Computing Net Operating Income

Deductions

Division 5 – Investment Allowance

Investment allowance

Division 6 – Cost of Natural Gas

Definitions for this Division

Application of this Division

Deemed purchase of natural gas

Cost of natural gas notionally acquired each month

Notional cost of natural gas notionally acquired in month

Cost adjustment for natural gas notionally acquired in month

Transportation cost for natural gas notionally acquired in month

Part 4 – Computation of Net Income

Division 1 – Net Income

Net income

Recaptured negative capital investment account balance

Net operating loss account deduction

Capital investment account deduction

Division 2 – Net Operating Loss Account

Net operating loss account balance

Division 3 – Capital Investment Account

Capital investment account balance

Amounts included in capital investment account

Amounts deducted from capital investment account

Rules relating to change in or multiple use of property

Rules relating to automobiles

Rules relating to leasehold interests

Amount in respect of disposition of property that is replaced

Proceeds of disposition if all or portion payable in future

Part 5 – Rules Relating to Parts 3 and 4

Division 1 – Application of Federal Act Rules Relating to Computation of Income

Application of federal provisions – rules relating to computation of income

General limitation respecting expenses

Application of

section 67.1 of federal Act – expenses for food

Application of

section 67.3 of federal Act – limitation re cost of leasing passenger vehicle

Application of

section 67.5 of federal Act – non-deductibility of illegal payments

Application of

section 67.6 of federal Act – non-deductibility of fines and penalties

Application of

section 68 of federal Act – allocation of amounts in consideration for property or services

Application of

section 69 of federal Act – inadequate considerations

Application of

section 76 of federal Act – security in satisfaction of income debt

Application of

section 78 of federal Act – unpaid amounts

Division 2 – Transfer Pricing

Interpretation for this Division

Taxpayer's self-dealings

Transfer pricing adjustment

Penalty

Contemporaneous documentation supporting reasonable efforts

Provisions not applicable if

section 79 applies

Division 3 – Computations for First Taxation Year

Definitions for this Division

Amounts included in net operating loss account

Amounts included in capital investment account

Division 4 – Amalgamation of Corporations

Definitions for this Division

Application of this Division

Deemed new corporation and taxation years

New corporation's tax pool balance

New corporation a continuation of predecessor corporations

Valuation of inventory

Rules relating to new corporation's income from a business or property

New corporation's net operating loss account balance

Rule relating to new corporation's capital investment account balance

Rule relating to closure tax credit

Notice to minister

Part 6 – Partnerships and Their Members

Division 1 – General Rules

Reference to person or taxpayer who is member of partnership

Application of this Part

General rules

Fiscal period of terminated partnership

Former member deemed to be member of partnership

Election made for partnership members

Agreement to share amounts

Contribution of property to partnership

Disposition of partnership property

Distribution of partnership property

Division 2 – Computation of Member's Net Operating Income or Net Operating Loss

Income and loss of partnership

Deemed receipt of financial incentive by partnership

Allocation of share of income or loss to former partner

Investment allowance – partnership's adjusted capital investment account balance

Division 3 – Computation of Member's Net Income

Partnership's capital investment account

Receipt of financial incentive – capital investment property

Deemed acquisition or disposition of capital investment property – partnership's capital investment account

Deemed acquisition or disposition of capital investment property – interest in a partnership

Division 4 – Member's Closure Tax Credit

Eligible partnership expenditure

Part 7 – Trusts

Trust taxed as individual

Limitation on deductions by trust

Deemed receipt of financial incentive by trust

Contribution of property to trust

Disposition of trust property

Part 8 – Closure Tax Credit

Definitions for this

Part

Tax credit

Deemed payment

Filing requirements

Part 9 – Regulations

General regulation-making authority

Application of federal regulation

Regulations in relation to the cost of natural gas

Part 10 – Amendments to Income Tax Act

128-129

Amendments to Income Tax Act

Commencement

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

Part 1 –

Interpretation

Definitions

1 In this Act:

"capital cost" , in relation to capital investment property acquired by a taxpayer, does not include any outlay or expense made or incurred by the taxpayer to the extent that the outlay or expense was deducted in computing the taxpayer's net operating income or net operating loss for the taxation year in which the capital investment property was acquired or a previous taxation year;

"capital investment property" means the following property:

(

a) property that is referred to in

section 7 [LNG facility] ;

(

b) intangible personal property that is used or exploited for liquefaction activities carried out at or in respect of an LNG facility,

but does not include the following property:

(

c) property that is described in an inventory;

(

d) a share;

(

e) an interest in a partnership or trust;

(

f) a bond, debenture, bill of exchange, note, mortgage or similar obligation;

"closure date" , in relation to an LNG facility, means the later of

(

a) the date that a certificate of restoration is issued under

section 41 of the Oil and Gas Activities Act in respect of the LNG facility, if that

section is applicable, and

(

b) the date that a prescribed document is issued in relation to an obligation imposed under another Act of the Legislature, or under

an Act of the Parliament of Canada, in relation to the restoration, reclamation or remediation of the LNG facility site;

"designated automobile amount" means the amount prescribed under

section 7307 (1) (

b) of the federal regulation;

"disposition" , in relation to any property, has the corresponding meaning to the definition of "dispose" in the

Interpretation Act and includes

(

a) any transaction or event entitling a taxpayer to proceeds of disposition of the property,

(

b) any transaction or event by which,

(

i) if the property is an agreement of sale or an interest in an agreement of sale, the agreement or interest is in whole or in

part cancelled,

(ii) if the property is a debt or any other right to receive an amount, the debt or other right is settled or cancelled, and

(iii) if the property is an option to acquire or dispose of property, the option expires, and

(

c) any transfer of the property to a trust or, if the property is property of a trust, any transfer of the property to any beneficiary under the trust, except as provided by paragraph (

f) of this definition,

but does not include

(

d) any transfer of the property as a consequence of which there is no change in the beneficial ownership of the property, except if the transfer is

(

i) from a person or a partnership to a trust for the benefit of the person or the partnership,

(ii) from a trust to a beneficiary under the trust, or

(iii) from one trust maintained for the benefit of one or more beneficiaries under the trust to another trust maintained for the benefit of the same beneficiaries,

(

e) any transfer of the property for the purpose only of securing a debt or any transfer by a creditor for the purpose only of returning property that had been used as security for a debt, and

(

f) any transfer of the property to a trust as a consequence of which there is no change in the beneficial ownership of the property, if the main purpose of the transfer is

(

i) to effect payment under a debt,

(ii) to provide assurance that an absolute or contingent obligation of the transferor will be satisfied, or

(iii) to facilitate either the provision of compensation or the enforcement of a penalty, in the event that an absolute or contingent obligation of the transferor is not satisfied;

"federal Act" means the Income Tax Act (Canada);

"federal regulation" means the Income Tax Regulations (Canada);

"feedstock pipeline" means that portion of a natural gas pipeline from and including the feedstock pipeline inlet on the natural gas pipeline to the feedstock spur pipeline connected to that natural gas pipeline;

"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;

"feedstock spur pipeline" means a natural gas pipeline that delivers natural gas from a feedstock pipeline to the series of systems described in

section 8 (1) (a) [LNG plant] ;

"financial incentive" , in relation to a taxpayer, means an amount received or receivable by the taxpayer

(

a) if the amount can reasonably be considered to have been received or receivable

(

i) as an inducement, whether as a grant, subsidy, forgivable loan, deduction from tax, allowance or any other form of inducement,

(ii) as a refund, reimbursement, contribution or allowance, or

(iii) as assistance, whether as a grant, subsidy, forgivable loan, deduction from tax, allowance or any other form of assistance, and

(

b) to the extent that the amount may not reasonably be considered to be a payment made in respect of the acquisition of an interest in the taxpayer, the taxpayer's business or the taxpayer's property,

but does not include an amount described in

section 7300 (a) [First Nations economic development] of the federal regulation or a prescribed amount;

"financing charge" , in relation to a taxpayer, means any of the following:

(

a) an amount paid or payable by the taxpayer as or instead of interest;

(

b) an amount paid or payable by the taxpayer in the course of

(

i) issuing or selling units of

(

A) the taxpayer, if the taxpayer is a unit trust,

(

B) interests in a partnership or syndicate by the partnership or syndicate, or

(

C) shares of the capital stock of the taxpayer,

(ii) borrowing money,

(iii) incurring indebtedness,

(iv) rescheduling or restructuring a debt obligation of the taxpayer, or

(

v) assuming a debt obligation,

including a commission, fee, or other amount paid or payable for or on account of services rendered by a person as a salesperson, agent or dealer in securities in the course of the issuing, selling or borrowing;

(

c) an amount paid or payable by the taxpayer as, or instead of, a standby charge, guarantee fee, registrar fee, transfer agent fee, filing fee, service fee or any similar fee that the taxpayer incurred

(

i) for the purpose of borrowing money,

(ii) in the course of incurring indebtedness,

(iii) for the purpose of rescheduling or restructuring a debt obligation of the taxpayer, or

(iv) for the purpose of assuming a debt obligation;

(

d) an amount paid by the taxpayer in satisfaction of the principal amount of a bond, debenture, bill of exchange, note, mortgage or similar obligation issued by the taxpayer;

"fiscal period" , in relation to a business or property of a person or partnership, means the fiscal period under

section 10 for the business or property of the person or partnership;

"hedging transaction" means

(

a) a transaction or series of transactions under an agreement that has all of the following characteristics:

(

i) the value of the agreement changes in response to a change in an interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating, credit index or other variable specified in the agreement if the variable is not within the influence of a party to the agreement;

(ii) the agreement requires no initial net investment or an initial net investment that is smaller than would be required for other types of agreements that would be expected to have a similar response to changes in market factors;

(iii) the agreement is settled at a future date,

other than a transaction or series of transactions under

(iv) an agreement that a taxpayer entered into and held for the purpose of, and until, the receipt or delivery of a service or property in respect of the taxpayer's expected acquisition, disposition, performance or use of the service or property, or

(

v) a prescribed agreement,

(

b) an acquisition or disposition of currency, or

(

c) a prescribed transaction or series of transactions,

which transaction, series of transactions, acquisition or disposition can reasonably be considered to have been undertaken for the purpose of reducing or eliminating a taxpayer's risk of loss and opportunity for gain or profit in respect of an LNG source;

"improvements" includes a building, a structure and any other thing that is affixed to, or installed in, a building, a structure or land so that it ceases to be personal property at common law;

"land" includes any foreshore or land covered by water and any interest in that foreshore or land, but does not include improvements;

"liquefaction activities" means one or more of the following:

(

a) acquiring, owning or disposing of

(

i) liquefied natural gas, natural gas liquids or natural gas that is at an LNG facility, or

(ii) a right to acquire, own or dispose of liquefied natural gas, natural gas liquids or natural gas that is at an LNG facility;

(

b) acquiring, owning or disposing of

(

i) all or part of an LNG facility, or

(ii) a right to use all or part of an LNG facility;

(

c) operating all or part of an LNG facility;

(

d) in relation to a person who owns or operates all or part of an LNG facility, disposing of electrical power generated at the LNG facility;

(

e) in relation to a person who owns or operates all or part of an LNG facility, acquiring, owning or disposing of intangible personal property that is used or exploited, or acquiring, owning or disposing of a right to use or exploit intangible personal property,

(

i) for the operations of the LNG facility, or

(ii) for one or more of the activities described in paragraphs (

a) to (

d) of this definition;

(

f) acquiring, owning or disposing of a right to receive income derived from one or more of the activities described in paragraphs (

a) to (

e) of this definition;

(

g) in relation to a person who carries out one or more of the activities described in paragraphs (

a) to (

f) of this definition, activities that support the construction, administration, operations and maintenance of the LNG plant and that are not otherwise described in paragraphs (

a) to (f);

(

h) restoring, reclaiming or remediating an LNG facility site,

but does not include prescribed activities;

"liquefied natural gas" means natural gas from which natural gas liquids have been predominantly removed and that is liquefied;

"LNG" means liquefied natural gas;

"LNG facility" means an LNG facility within the meaning of

section 7;

"LNG facility inlet meter" means the meter on a feedstock spur pipeline at which the volume of natural gas is first measured after the natural gas is delivered to an LNG facility;

"LNG plant" means an LNG plant within the meaning of

section 8;

"LNG source" means liquefaction activities carried out at or in respect of a particular LNG facility;

"natural gas" has the same meaning as in the Petroleum and Natural Gas Act , but does not include liquefied natural gas;

"natural gas liquids" means butane, ethane, propane or pentanes plus and any other condensates, or any combination of them, whether in gaseous or liquid form;

"net income" means a taxpayer's net income for a taxation year from an LNG source, as determined under this Act;

"net operating income" means a taxpayer's net operating income for a taxation year from an LNG source, as determined under this Act;

"net operating loss" means a taxpayer's net operating loss for a taxation year from an LNG source, as determined under this Act;

"person" , or any word or expression descriptive of a person, has the same meaning as in

section 248 (1) of the federal Act;

"proceeds of disposition" has the same meaning as in

section 13 (21) of the federal Act, except that the definition in that

section is to be read without reference to paragraph (

h) of that definition;

"property" means property of any kind, including, without limitation,

(

a) a right of any kind, including a right described in the definition of "liquefaction activities" in this section,

(

b) a chose in action, and

(

c) unless a contrary intention appears in this Act, money;

"reference point" means the prescribed reference point;

"taxation year" means a person's taxation year under

section 9;

"taxpayer" means a person who engages in or has income derived from liquefaction activities, whether or not the person is liable to pay tax under this Act;

"trust" does not include a testamentary trust.

Definitions in federal Act and federal regulation

(1) For the purposes of this Act, unless a contrary intention appears in this Act or the regulations made under this Act, the

definitions in the federal Act and the federal regulation apply.

(2) The following

definitions in the federal Act do not apply for the purposes of this Act:

(

a) the

definitions of "cost amount" in sections 108 (1) and 248 (1) of the federal Act;

(

b) the definition of "gross revenue" in

section 248 (1) of the federal Act;

(

c) the definition of "Minister" in

section 248 (1) of the federal Act, except in relation to

section 248 (17.2) of the federal Act, as that

section applies for the purposes of this Act;

(

d) the

definitions of "trust" in sections 108 (1) and 248 (1) of the federal Act.

(3) Subject to

section 126 [application of federal regulation] , the definition of "regulation" in

section 248 (1) of the federal Act applies for the purposes of this Act, but only in relation to provisions of the federal Act that apply for the purposes of this Act.

(4) In applying the

definitions in

section 248 (1) of the federal Act that apply for the purposes of this Act, the following rules apply:

(

a) the definition of "amount" in that

section is to be read as if everything after "right or thing," were excluded;

(

b) the definition of "business" in that

section is to be read as if the reference to ", except for the purposes of paragraph 18 (2) (c),

section 54.2, subsection 95 (1) and paragraph 110.6 (14) (f)," were excluded;

(

c) the definition of "exempt income" in that

section is to be read as if the reference to "because of any provision of

Part I, not included in computing the person's income, but does not include a dividend on a share or a support amount (as defined in subsection 56.1 (4))" were read as a reference to "because of any provision of this Act, not taken into account in computing the person's net income, net operating income or net operating loss";

(

d) the definition of "filing-due date" in that

section is to be read as if

(

i) the reference to "return of income under

Part I" were read as a reference to "tax return under this Act", and

(ii) the reference to "under that Part" were read as a reference to "under this Act";

(

e) the definition of "inventory" in that

section is to be read as if the reference to "and, with respect to a farming business, includes all of the livestock held in the course of carrying on the business" were excluded.

References in applicable provisions of

federal Act and federal regulation

(1) If a provision, referred to in this subsection as "that section", of the federal Act or the federal regulation is made applicable for the purposes of this Act, unless a contrary intention appears in this Act or a regulation made under this Act, that section, as amended from time to time before or after this subsection comes into force, applies with the changes the circumstances require for the purposes of this Act as though that

section had been enacted as a provision of this Act, and in applying that

section for the purposes of this Act that

section is to be read as follows:

(

a) a reference in that

section to tax under the federal Act is to be read as a reference to tax under this Act;

(

b) a reference in that

section to a particular provision of the federal Act that is the same as or similar to a provision of this Act is to be read as a reference to the provision of this Act;

(

c) a reference in that

section to a particular provision of the federal Act that applies for the purposes of this Act is to be read as a reference to the particular provision as it applies for the purposes of this Act;

(

d) a reference in that

section to the federal Act or the federal regulation is to be read as including a reference to this Act or a regulation made under this Act;

(

e) a reference in that

section to "this Part" is to be read as a reference to "this Act";

(

f) subject to subsection (2), a reference in that

section to "Minister" is to be read as a reference to the member of the Executive Council charged with the administration of this Act.

(2) Subsection (1) (

f) does not apply to

section 248 (17.2) of the federal Act, as that

section applies for the purposes of this Act.

(3) Subsection (1) or any other provision of this Act or the regulations made under this Act that provides for changes to a provision of the federal Act or the federal regulation, as that provision of the federal Act or the federal regulation applies for the purposes of this Act, applies in addition to any other changes the circumstances require for the purposes of this Act and in addition to any other changes provided by another provision of this Act or the regulations made under this Act.

Provisions of Act applied and interpreted

consistent with federal Act

4 In any case of doubt, the provisions of this Act must be applied and interpreted in a manner consistent with similar provisions of the federal Act.

Reference aids in relation to federal Act and federal regulation

5 In this Act or a regulation made under this Act, if a reference to a provision of the federal Act or the federal regulation is followed by italicized text in square brackets that is or purports to be descriptive of the subject matter of the provision, the text in square brackets

(

a) is not part of this Act or the regulation, and

(

b) is to be considered to have been added editorially for convenience of reference only.

References to income, loss and capital investment property

6 In applying this Act to a taxpayer in respect of an LNG source,

(

a) subject to paragraph (b), a reference in this Act to a taxpayer's income or loss from a business is a reference to the income or loss from a business that is in respect of the LNG source,

(

b) if only part of a business is in respect of the LNG source, a reference in this Act to a taxpayer's income or loss from the business is a reference to the income or loss from only that part of the business that is in respect of the LNG source,

(

c) subject to paragraph (d), a reference in this Act to a taxpayer's income or loss from property is a reference to the income or loss from property that is in respect of the LNG source,

(

d) if only part of a property is in respect of the LNG source, a reference in this Act to a taxpayer's income or loss from property is a reference to the income or loss from only that part of the property that is in respect of the LNG source,

(

e) a reference in this Act to a taxpayer's income from another source described in Division 3 [Other Sources of Income] of

Part 3 is a reference to that income that is in respect of the LNG source,

(

f) a reference in this Act to a taxpayer's deductions permitted under Division 4 [Deductions in Computing Net Operating Income] of

Part 3 is a reference to those deductions that are in respect of the LNG source, and

(

g) a reference in this Act to capital investment property that is acquired or disposed of by, or that otherwise relates to, a taxpayer is a reference to only that capital investment property that is in respect of the LNG source.

LNG facility

(1) For the purposes of this Act, an LNG facility consists of all of the following:

(

a) a particular LNG plant located in British Columbia;

(

b) land that is

(

i) subjacent to the LNG plant, or

(ii) contiguous with the land described in subparagraph (

i) and used or held for the operations of the LNG plant;

(

c) tangible personal property used on, and improvements to, the land described in paragraph (

b) to carry out activities described in paragraph (

g) of the definition of "liquefaction activities" in

section 1.

(2) For the purposes of this Act, a facility that is an LNG facility continues to be an LNG facility until the closure date for the LNG facility.

LNG plant

(1) For the purposes of this Act, an LNG plant consists of all of the following:

(

a) tangible personal property and improvements that are part of a series of systems used or intended to be used for liquefying natural gas, including, without limitation, tangible personal property and improvements that are used or intended to be used for one or more of the following purposes:

(

i) delivering natural gas to the series of systems by means of a feedstock spur pipeline;

(ii) receiving or measuring natural gas delivered to the series of systems;

(iii) removing natural gas liquids from natural gas and separating those liquids;

(iv) storing natural gas liquids;

(

b) tangible personal property and improvements that are used or intended to be used for storing liquefied natural gas if that property is part of the series of systems referred to in paragraph (a);

(

c) tangible personal property and improvements that are part of a series of systems used or intended to be used for one or more of the following purposes if the series of systems immediately follows the series of systems referred to in paragraph (a):

(

i) measuring liquefied natural gas or natural gas liquids that are to be loaded for shipment or transmitted for regasification;

(ii) loading liquefied natural gas or natural gas liquids for shipment;

(iii) supporting the loading of liquefied natural gas or natural gas liquids for shipment;

(iv) transmitting liquefied natural gas for regasification;

(

d) tangible personal property and improvements that are used or intended to be used to generate electrical power if the electrical power is to be used primarily for the series of systems referred to in paragraph (a), other than tangible personal property and improvements owned or operated by a prescribed person;

(

e) tangible personal property and improvements that are necessary for complying with health, safety and environmental standards required by law in relation to the use or intended use of the tangible personal property and improvements described in paragraphs (

a) to (d).

(2) Despite subsection (1), the following do not form part of an LNG plant:

(

a) a feedstock pipeline;

(

b) tangible personal property and improvements that are located upstream of a feedstock spur pipeline;

(

c) a vehicle or vessel that is used to transport liquefied natural gas or natural gas liquids from a series of systems referred to in subsection (1);

(

d) a pipeline used to transport liquefied natural gas, natural gas liquids or natural gas from a series of systems referred to in subsection (1), except a pipeline used for a purpose described in subsection (1) (c) (ii) or (iv).

(3) For the purposes of this Act, an LNG plant comes into existence when the construction, fabrication or installation of a series of systems referred to in subsection (1) (

a) or (

c) begins in British Columbia on or in the land on or in which the series of systems is intended to be used.

Taxation year

(1) For the purposes of this Act, a person's taxation year is, subject to subsections (2) to (4), as follows:

(

a) if the person is subject to taxation under

Part I of the federal Act, the same as the person's taxation year under the federal Act;

(

b) if the person is not subject to taxation under

Part I of the federal Act, the person's taxation year under the federal Act determined as if the person were subject to taxation under

Part I of the federal Act.

(2) If a person's taxation year ends at any time, the person's subsequent taxation year, if any, begins immediately after that time.

(3) If a person's taxation year begins at any time, the person's preceding taxation year, if any, ends immediately before that time.

(4) A person has no taxation year

(

a) that begins before January 1, 2017, or

(

b) for a period that would otherwise be a taxation year under subsection (1), if the person has not engaged in, and has no income derived from, liquefaction activities before the end of that period.

Fiscal period

(1) For the purposes of this Act, a fiscal period of a business or property of a person or partnership is, subject to subsections (3) and (4), as follows:

(

a) if the federal Act applies to the person or partnership, the same as the fiscal period under the federal Act for the business or property of the person or partnership;

(

b) if the federal Act does not apply to the person or partnership, the fiscal period determined in accordance with subsection (2).

(2) Section 249.1 [definition of "fiscal period"] of the federal Act, except subsections (4), (5) and (6) of that section, applies for the purposes of this Act to the extent necessary for subsection (1) (

b) of this section.

(3) If a fiscal period of a business or property of a person or partnership ends at any time, the subsequent fiscal period, if any, of the business or property of the person or partnership begins immediately after that time.

(4) If a fiscal period of a business or property of a person or partnership begins at any time, the preceding fiscal period, if any, of the business or property of the person or partnership ends immediately before that time.

Application of federal provisions –

relationships between persons

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

section 251 [arm's length] ;

section 251.1 [affiliated persons] ;

section 252 [extended meanings in relation to individuals] ;

section 256 (5.1), (6), (6.1) and (6.2) [control of corporations] .

(2) In applying

section 251 of the federal Act for the purposes of this Act, the following rules apply:

(a) subsection (1) (

b) of that

section is to be read as if the reference to "(other than a trust described in any of paragraphs (

a) to (e.1) of the definition "trust" in subsection 108 (1))" were excluded;

(b) subsection (5) of that

section is to be read as if the reference to "and the definition "Canadian-controlled private corporation" in subsection 125 (7)" were excluded.

Assistance from government and repayment of assistance

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

section 248 (16) [goods and services tax – input tax credit and rebate] ;

section 248 (16.1) [Quebec input tax refund and rebate] ;

section 248 (17) [application of subsection (16) to passenger vehicles and aircraft] ;

section 248 (17.1) [application of subsection (16.1) to passenger vehicles and aircraft] ;

section 248 (17.2) [input tax credit on assessment] ;

section 248 (17.3) [Quebec input tax refund on assessment] ;

section 248 (18) [goods and services tax – repayment of input tax credit] ;

section 248 (18.1) [repayment of Quebec input tax refund] .

(2) In applying

section 248 (16) and (16.1) of the federal Act for the purposes of this Act, that

section is to be read as if the references to "and subsection 6 (8)" were excluded.

Trusts and beneficiaries

(1) In this Act, a reference to a trust is to be read as including a reference to the trustee of the trust unless the context otherwise requires.

(2) For the purposes of this Act, a trust is deemed not to include an arrangement under which the trust can reasonably be considered to act as agent for all of the beneficiaries under the trust with respect to all dealings with all of the trust's property.

(3) Section 248 (25) [beneficially interested] and (25.2) [trusts to ensure obligations fulfilled] of the federal Act applies for the purposes of this Act.

(4) Despite

section 248 (25) of the federal Act, as that

section applies for the purposes of this Act, for the purposes of subsection (2) of this section, a person or partnership is deemed not to be a beneficiary under a trust at a particular time if the person or partnership is beneficially interested in the trust at that time only because of one or more of the following rights:

(

a) a right that may arise as a consequence of the terms of the will or other testamentary instrument of an individual who, at that time, is a beneficiary under the trust;

(

b) a right that may arise as a consequence of the law governing the intestacy of an individual who, at that time, is a beneficiary under the trust;

(

c) a right as a shareholder under the terms of the shares of the capital stock of a corporation that, at that time, is a beneficiary under the trust;

(

d) a right as a member of a partnership under the terms of the partnership agreement if, at that time, the partnership is a beneficiary under the trust.

Series of transactions

14 For the purposes of this Act, a series of transactions is deemed to include any related transactions completed in contemplation of the series.

Limitation respecting inclusions,

deductions and amounts paid

15 The following rules apply unless a contrary intention appears in this Act:

(

a) in computing a taxpayer's net income, net operating income or net operating loss for a taxation year from an LNG source or in computing a taxpayer's income or loss for a taxation year from a business or property, no provision of this Act is to be construed as requiring the inclusion or requiring or permitting the deduction, either directly or indirectly, of any amount to the extent that the amount has already been directly or indirectly included or deducted in computing, for the taxation year or a previous taxation year, the taxpayer's net income, net operating income, net operating loss, income or loss;

(

b) in computing a taxpayer's tax payable under this Act for a taxation year, no provision of this Act is to be construed as requiring or permitting the deduction, either directly or indirectly, of any amount to the extent that the amount has already been directly or indirectly deducted in computing the taxpayer's tax payable for the taxation year or a previous taxation year;

(

c) no provision of this Act is to be construed as considering an amount to have been paid on account of a taxpayer's tax payable under this Act for a taxation year to the extent that the amount has already been considered to have been paid on account of the taxpayer's tax payable for the taxation year or a previous taxation year.

Application of other federal provisions

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

section 248 (5) [substituted property] ;

section 248 (15) [goods and services tax – change of use] ;

section 248 (20) [partition of property] ;

section 248 (21) [subdivision of property] ;

section 248 (24) [accounting methods] ;

section 257 [negative amounts] .

(2) In applying

section 248 (5) of the federal Act for the purposes of this Act, that

section is to be read as if the reference to "paragraph 98 (1) (a)" were read as a reference to "section 106 (

a) of this Act".

(3) In applying

section 248 (20) of the federal Act for the purposes of this Act, that

section is to be read as if the reference to "subsections (21) to (23)" were read as a reference to "subsection (21)".

Part 2 – Application of This Act

and Liability for Tax

Application of this Act

(1) This Act applies to a taxpayer for a taxation year in respect of each LNG source as if the taxpayer were a separate person in respect of each LNG source.

(2) This Act applies to a taxpayer for taxation years that begin on or after January 1, 2017.

Tax on net income

18 If a taxpayer has net income for a taxation year from an LNG source, the taxpayer must pay to the government a tax as follows:

(

a) if the taxation year begins on or after January 1, 2017 and before January 1, 2037, a tax equal to 3.5% of the taxpayer's net income for the taxation year from the LNG source;

(

b) if the taxation year begins on or after January 1, 2037, a tax equal to 5% of the taxpayer's net income for the taxation year from the LNG source.

Deduction from tax on net income

(1) A taxpayer who must pay tax under

section 18 for a taxation year in respect of an LNG source must deduct from the tax payable under that

section an amount equal to the least of the following:

(

a) an amount equal to the balance of the taxpayer's tax pool for the taxation year for the LNG source;

(

b) an amount equal to the tax payable under

section 18 for the taxation year in respect of the LNG source;

(

c) subject to subsection (2) of this section, an amount equal to the amount, if any, by which the amount of tax payable under

section 18 for the taxation year in respect of the LNG source exceeds the amount of tax that would be payable under

section 21 for the taxation year in respect of the LNG source if that

section were read without reference to subsection (2) of that section.

(2) Subsection (1) (

c) does not apply if the taxpayer must pay tax under

section 21 for the taxation year in respect of the LNG source.

Tax pool balance

20 The balance of a taxpayer's tax pool for a taxation year for an LNG source is the amount equal to the total of all amounts payable by the taxpayer under

section 21 in respect of the LNG source for the taxation year and for previous taxation years less the total of all amounts deducted under

section 19 (1) (a), (

b) or (

c) in respect of the LNG source for previous taxation years.

Tax on net operating income

(1) If a taxpayer has net operating income for a taxation year from an LNG source, the taxpayer must pay to the government a tax equal to 1.5% of the taxpayer's net operating income for the taxation year from the LNG source.

(2) Subsection (1) does not apply to a taxpayer for a taxation year in respect of an LNG source if the taxpayer deducts no amount under

section 54 (3) in computing the taxpayer's net income for the taxation year from the LNG source.

Exemptions from tax

(1) No tax is payable under this Act on the net income or net operating income of a person for the period when the person was exempt from tax under

Part I of the federal Act in accordance with

section 149 (1) of the federal Act, other than paragraphs (

d) to (d.4) of that section.

(2) No tax is payable under this Act on the net income or net operating income of a trust for the period when all of the beneficiaries of the trust are exempt from paying tax under

Part I of the federal Act in accordance with

section 149 (1) (c), (d.5) or (d.6) of the federal Act.

(3) No tax is payable under this Act on the net income or net operating income of a person for the period when prescribed circumstances apply in relation to the person.

(4) No tax is payable under this Act by a prescribed person or by a person who is a member of a prescribed class of persons.

Part 3 – Computation of Net Operating Income or

Net Operating Loss

Division 1 – Basic Rules

Net operating income

23 For the purposes of this Act, a taxpayer's net operating income for a taxation year from an LNG source is determined by the following rules:

(

a) determine the total of all amounts each of which is

(

i) the taxpayer's income for the taxation year from a business or property that is in respect of the LNG source, or

(ii) the taxpayer's income for the taxation year from another source described in Division 3 [Other Sources of Income] that is in respect of the LNG source;

(

b) determine the amount, if any, by which the total determined under paragraph (

a) exceeds the total of the deductions permitted under Division 4 [Deductions in Computing Net Operating Income] in computing the taxpayer's net operating income for the taxation year from the LNG source, except to the extent that those deductions have been taken into account in determining the total referred to in paragraph (a);

(

c) determine the amount, if any, by which the amount determined under paragraph (

b) exceeds the total of

(

i) all amounts each of which is the taxpayer's loss for the taxation year from a business or property that is in respect of the LNG source, and

(ii) the taxpayer's investment allowance for the taxation year in respect of the LNG source;

(

d) if an amount is determined under paragraph (

c) for the taxation year in respect of the taxpayer, that amount is the taxpayer's net operating income for the taxation year from the LNG source;

(

e) if no amount is determined under paragraph (

c) for the taxation year in respect of the taxpayer, the taxpayer is deemed to have net operating income for the taxation year from the LNG source in an amount equal to zero.

Net operating loss

24 For the purposes of this Act, a taxpayer's net operating loss for a taxation year from an LNG source is determined by the following rules:

(

a) determine the amount, if any, that is the total of

(

i) all amounts each of which is the taxpayer's loss for the taxation year from a business or property that is in respect of the LNG source, and

(ii) the taxpayer's investment allowance for the taxation year in respect of the LNG source;

(

b) determine the amount, if any, by which the total of the amount determined under paragraph (

a) exceeds the amount determined under

section 23 (

b) for the taxation year in respect of the taxpayer;

(

c) if an amount is determined under paragraph (

b) for the taxation year in respect of the taxpayer, that amount is the taxpayer's net operating loss for the taxation year from the LNG source;

(

d) if no amount is determined under paragraph (

b) for the taxation year in respect of the taxpayer, the taxpayer is deemed to have a net operating loss for the taxation year from the LNG source in an amount equal to zero.

Income or loss from a source

25 For the purposes of this Act, a taxpayer's income or loss for a taxation year from a business or property, or a taxpayer's income from another source described in Division 3 [Other Sources of Income] , is the taxpayer's income or loss from the source computed under this Act as if the taxpayer

(

a) had during the taxation year no income or loss except from that source, and

(

b) were allowed no deductions in computing the taxpayer's income for the taxation year except

(

i) those deductions as may reasonably be regarded as wholly applicable to that source, and

(ii) that portion of any other deductions as may reasonably be regarded as applicable to that source.

Division 2 – Income or Loss from a Business or Property

Income or loss for a taxation year

(1) Subject to this Act, a taxpayer's income for a taxation year from a business or property is the taxpayer's profit from the business or property for the taxation year.

(2) Subject to this Act, a taxpayer's loss for a taxation year from a business or property is the amount of the taxpayer's loss, if any, for the taxation year from the business or property computed by applying, with such modifications as the circumstances require, the provisions of this Act respecting computation of income from that business or property.

(3) For the purposes of this Act,

(

a) income from a business or property does not include any gain from the disposition of capital investment property, and

(

b) loss from a business or property does not include any loss from the disposition of capital investment property.

Application of federal provisions –

income or loss from business or property

(1) Subject to this Act, Subdivision b of Division B of

Part I of the federal Act applies, for the purposes of this Act, in determining a taxpayer's income or loss for a taxation year from a business or property.

(2) The following sections in Subdivision b of Division B of

Part I of the federal Act do not apply for the purposes of this Act:

section 9 [income] ;

section 10 [valuation of inventory] ;

section 12.1 [cash bonus on Canada Savings Bonds] ;

section 12.2 [life insurance policies and annuity contracts] ;

section 12.5 [insurer's reserve inclusion] ;

section 12.6 [income inclusion respecting stapled securities] ;

section 13 [recaptured depreciation] ;

section 14 [eligible capital property] ;

section 15 [benefit conferred on shareholder] ;

section 15.1 [interest on small business development bonds] ;

section 15.2 [interest on small business bond] ;

section 16 [income and capital combined] ;

section 16.1 [leasing properties] ;

section 17 [amount owing by non-resident] ;

section 17.1 [deemed interest income] ;

section 18.1 [matchable expenditures] ;

section 18.3 [amounts not deductible in respect of stapled securities] ;

section 20.1 [borrowed money used to earn income from business or property] ;

section 20.2 [interest – authorized foreign bank] ;

section 20.3 [weak currency debt] ;

section 20.4 [insurer's reserve deduction] ;

section 21 [cost of borrowed money] ;

section 24 [ceasing to carry on business] ;

section 25 [fiscal period for individual proprietor of business disposed of] ;

section 26 [banks] ;

section 27 [application of

Part I to Crown corporation] ;

section 28 [farming or fishing business] ;

section 29 [disposition of animal of basic herd class] ;

section 30 [improving land for farming] ;

section 31 [loss from farming where chief source of income not farming] ;

section 32 [insurance agents and brokers] ;

section 34 [professional business] ;

section 35 [prospectors and grubstakers] ;

section 37 [scientific research and experimental development] .

Valuation of inventory

(1) For the purpose of computing a taxpayer's income for a taxation year from a business, property described in an inventory must be valued at the cost at which the taxpayer acquired the property.

(2) For the purposes of this Act, land may not be described in an inventory of a taxpayer's business.

(3) If at any time a taxpayer ceases to use, in connection with a business carried on by the taxpayer immediately before that time, a property that was immediately before that time described in the inventory of the business, other than a property that was, otherwise than because of this subsection, disposed of by the taxpayer at that time or property that is liquefied natural gas, natural gas liquids or natural gas, the taxpayer is deemed

(

a) to have disposed of the property immediately before that time for proceeds of disposition equal to its fair market value at that time, and

(

b) to have received those proceeds immediately before that time in the course of carrying on the business.

(4) If at any time a property, other than natural gas, becomes included in the inventory of a business carried on by a taxpayer, other than a property that was, otherwise than because of this subsection, acquired by the taxpayer at that time, the taxpayer is deemed to have acquired the property at that time at a cost equal to its fair market value at that time.

(5) If a taxpayer owns liquefied natural gas, natural gas liquids or natural gas immediately before and after the liquefied natural gas, natural gas liquids or natural gas leaves an LNG plant, the taxpayer is deemed, for the purposes of this Act, to have disposed of the liquefied natural gas, natural gas liquids or natural gas, when it leaves the LNG plant, in a transaction with a person with whom the taxpayer does not deal at arm's length for the amount that would have been the price in respect of the disposition if the taxpayer had disposed of the liquefied natural gas, natural gas liquids or natural gas to a person with whom the taxpayer was dealing at arm's length.

Application of

section 11 of federal Act –

reference to taxation year

29 In applying

section 11 (2) of the federal Act for the purposes of this Act, that

section is to be read as if the reference to "in this subdivision or

section 80.3" were read as a reference to "in or under Division 2, 5 or 6 of

Part 3 of this Act".

Application of

section 12 of federal Act –

income inclusions

(1) The following provisions of

section 12 (1) of the federal Act do not apply for the purposes of this Act:

paragraph (c) [interest] ;

paragraph (d.1) [reserve for guarantees, etc.] ;

paragraph (e.1) [negative reserves] ;

paragraph (g.1) [proceeds of disposition of right to receive production] ;

paragraph (h) [previous reserve for quadrennial survey] ;

paragraph (i) [bad debts recovered] ;

paragraph (i.1) [bad debts recovered] ;

paragraph (j) [dividends from resident corporations] ;

paragraph (k) [foreign corporations, trusts and investment entities] ;

paragraph (l) [partnership income] ;

paragraph (l.1) [partnership – interest deduction add back] ;

paragraph (m) [benefits from trusts] ;

paragraph (o.1) [foreign oil and gas production taxes] ;

paragraph (p) [certain payments to farmers] ;

paragraph (q) [employment tax deduction] ;

paragraph (t) [investment tax credit] ;

paragraph (u) [home insulation or energy conversion grants] ;

paragraph (v) [research and development deductions] ;

paragraph (w) [benefit] ;

paragraph (x) [inducement, reimbursement, etc.] ;

paragraph (x.1) [fuel tax rebates] ;

paragraph (x.2) [Crown charge rebates] ;

paragraph (y) [automobile provided to partner] ;

paragraph (z) [amateur athlete trust payments] ;

paragraph (z.1) [qualifying environmental trusts] ;

paragraph (z.2) [dispositions of interests in qualifying environmental trusts] ;

paragraph (z.3) [debt forgiveness] ;

paragraph (z.4) [eligible funeral arrangements] ;

paragraph (z.5) [TFSA amounts] ;

paragraph (z.7) [derivative forward agreement] .

(2) In applying

section 12 (1) of the federal Act for the purposes of this Act, the following rules apply:

(

a) paragraph (e) (i) [reserves for certain goods and services] of that

section is to be read as if the reference to ", paragraph 20 (1) (m.1)" were excluded;

(

b) paragraph (f) [insurance proceeds expended] of that

section is to be read as if the reference to "depreciable property" were read as a reference to "capital investment property";

(

c) paragraph (g) [payments based on production or use] of that

section is to be read as if

(

i) the references to "property" were read as references to "capital investment property", and

(ii) the reference to ", except that an instalment of the sale price of agricultural land is not included by virtue of this paragraph" were excluded;

(

d) paragraph (n.1) [employee benefit plan] of that

section is to be read as if

(

i) the reference to "(other than amounts included in the income of the taxpayer by virtue of paragraph 12 (1) (m))" were excluded, and

(ii) the reference in subparagraph (iv) of that paragraph to "(other than an amount included in the taxpayer's income by virtue of paragraph 12 (1) (m))" were excluded;

(

e) paragraph (r) [inventory adjustment] of that

section is to be read as if the references to "cost amount" were read as references to "cost".

(3) The following provisions of

section 12 of the federal Act do not apply for the purposes of this Act:

subsection (2.02) [source of income] ;

subsection (2.1) [receipt of inducement, reimbursement, etc.] ;

subsection (2.2) [deemed outlay or expense] ;

subsection (3) [interest income] ;

subsection (4) [interest from investment contract] ;

subsection (4.1) [impaired debt obligations] ;

subsection (9) [deemed accrual of interest] ;

subsection (9.1) [exclusion of proceeds of disposition] ;

subsection (10.1) [income from R.H.O.S.P.] ;

subsection (10.2) [NISA receipts] ;

subsection (10.3) [amount credited or added not included in income] ;

subsection (10.4) [acquisition of control – corporate NISA Fund No. 2] ;

subsection (11) [definitions] .

Other income inclusions

31 In computing a taxpayer's income for a taxation year from a business or property, the taxpayer must include the following amounts:

(

a) an amount received or receivable by the taxpayer in the taxation year as payment under a lease in respect of which the taxpayer is lessor;

(

b) an amount received or receivable by the taxpayer in the taxation year in respect of the granting by the taxpayer of a leasehold interest or a right to extend, renew or assign a lease, unless

section 64 (2) (

b) applies in relation to the granting of the leasehold interest;

(

c) an amount received by the taxpayer in the taxation year on account of a debt in respect of which a deduction for bad debts was made in computing the taxpayer's income for a previous taxation year from the business or property;

(

d) an amount that is, under

Part 6 [Partnerships and their Members] , income of the taxpayer for the taxation year from the business or property;

(

e) a financial incentive received by the taxpayer in the taxation year in the course of earning income from the business or property, to the extent that the financial incentive

(

i) was not otherwise included in computing the taxpayer's income for the taxation year or a previous taxation year from the business or property,

(ii) was not otherwise deducted in computing, for the purposes of this Part, any balance of undeducted outlays, expenses or other amounts for the taxation year or a previous taxation year, or

(iii) does not otherwise reduce an outlay or expense deducted, or that would have been deductible if the financial incentive had not been received, in computing the taxpayer's income for the taxation year or a previous taxation year from the business or property.

Income exclusions

32 In computing a taxpayer's income for a taxation year from a business or property, the taxpayer may not include any of the following amounts:

(

a) an amount received or receivable by the taxpayer in the taxation year in respect of a hedging transaction;

(

b) an amount that, because of a fluctuation in the value of a currency other than Canadian currency relative to Canadian currency, is a gain made by the taxpayer in the taxation year in respect of an amount paid by the taxpayer in satisfaction of a principal amount of a bond, debenture, bill of exchange, note, mortgage or similar obligation issued by the taxpayer more than 12 months before the amount was paid;

(

c) an amount received or receivable by the taxpayer in the taxation year in respect of a disposition of an earned credit, as defined in the Greenhouse Gas Industrial Reporting and Control Act .

Application of

section 18 of federal Act –

general limitations on deductions

(1) The following provisions of

section 18 (1) of the federal Act do not apply for the purposes of this Act:

paragraph (e.1) [unpaid claims under insurance policies] ;

paragraph (p) [limitation re personal services business expenses] ;

paragraph (q) [limitation re cancellation of lease] ;

paragraph (s) [loans or lending assets] ;

paragraph (t) [payments under different acts] ;

paragraph (v) [interest – authorized foreign bank] ;

paragraph (w) [underlying payments on qualified securities] .

(2) In applying

section 18 (1) of the federal Act for the purposes of this Act, the following rules apply:

(

a) paragraph (f) [payments on discounted bonds] of that

section is to be read as if the reference to "described in paragraph 20 (1) (

f) except as expressly permitted by that paragraph" were excluded;

(

b) paragraph (g) [payments on income bonds] of that

section is to be read as if everything after "income bonds or income debentures" were excluded.

(3) The following provisions of

section 18 of the federal Act do not apply for the purposes of this Act:

subsection (2) [limit on certain interest and property tax] ;

subsection (2.1) [where taxpayer member of partnership] ;

subsection (2.2) [base level deduction] ;

subsection (2.3) [associated corporations] ;

subsection (2.4) [failure to file agreement] ;

subsection (2.5) [special rules for base level deduction] ;

subsection (3) [definitions] ;

subsection (3.1) [costs relating to construction of building or ownership of land] ;

subsection (3.2) [included costs] ;

subsection (3.3) [completion] ;

subsection (3.4) [where s. (3.1) does not apply] ;

subsection (3.5) [where s. (3.1) does not apply] ;

subsection (3.6) [undue delay] ;

subsection (3.7) [commencement of footings] ;

subsection (4) [limitation on deduction of interest] ;

subsection (5) [definitions] ;

subsection (5.1) [specified shareholder or specified beneficiary] ;

subsection (5.2) [specified shareholder or specified beneficiary] ;

subsection (5.3) [property used in business – cost attribution] ;

subsection (5.4) [rules – trust income] ;

subsection (6) [loans made on condition] ;

subsection (7) [partnership debts] ;

subsection (8) [exception – foreign accrual property income] ;

subsection (9.01) [group term life insurance] ;

subsection (9.02) [application of subsection (9) to insurers] ;

subsection (9.1) [penalties, bonuses and rate-reduction payments] ;

subsection (9.2) [interest on debt obligation] ;

subsection (9.3) [interest on debt obligations] ;

subsection (9.4) [interest on debt obligations] ;

subsection (9.5) [interest on debt obligations] ;

subsection (9.6) [interest on debt obligations] ;

subsection (9.7) [interest on debt obligations] ;

subsection (9.8) [interest on debt obligations] ;

subsection (11) [limitation] ;

subsection (13) [when s. (15) applies to money lenders] ;

subsection (14) [when s. (15) applies to adventurers in trade] ;

subsection (15) [loss on certain properties] ;

subsection (16) [deemed identical property] .

(4) In applying

section 18 (9) [limitation respecting prepaid expenses] of the federal Act for the purposes of this Act, the following rules apply:

(

a) paragraph (

a) of that

section is to be read as if

(

i) the reference to "(other than income from a business computed in accordance with the method authorized by subsection 28 (1))" were excluded,

(ii) subparagraph (ii) of that paragraph read as follows:

(ii) as, on account of, in lieu of payment of or in satisfaction of, taxes, rent or royalties in respect of a period that is after the end of the taxation year,

and

(iii) subparagraph (iii) of that paragraph were read without reference to clause (

A) of that subparagraph;

(

b) paragraph (

b) of that

section is to be read as if the reference to "(other than an outlay or expense of a corporation, partnership or trust as, on account of, in lieu of payment of or in satisfaction of, interest)" were excluded;

(

c) that

section is to be read without reference to paragraphs (

c) to (

f) of that section.

Other limitations on deductions

(1) In computing a taxpayer's income for a taxation year from a business or property, the taxpayer may not deduct any of the following amounts:

(

a) an amount in respect of any amount paid or payable under the federal Act;

(

b) an amount paid or payable in the taxation year in respect of a hedging transaction;

(

c) an amount that, because of a fluctuation in the value of a currency other than Canadian currency relative to Canadian currency, is a loss sustained by the taxpayer in the taxation year in respect of an amount paid by the taxpayer in satisfaction of a principal amount of a bond, debenture, bill of exchange, note, mortgage or similar obligation issued by the taxpayer more than 12 months before the amount was paid.

(2) Despite any other provision of this Part, in computing a taxpayer's income for a taxation year from a business or property, the taxpayer may not deduct a financing charge paid or payable by the taxpayer in the taxation year.

Application of

section 19.01 of federal Act –

limitation re advertising expense in periodicals

Section 19.01 (5) (b) [advice] of the federal Act does not apply for the purposes of this Act.

Application of

section 19.1 of federal Act – limitation

re advertising expense on broadcasting undertaking

(1) In applying

section 19.1 (1) of the federal Act for the purposes of this Act, that

section is to be read as if the reference to "Subject to subsection 19.1 (2)," and the reference to "made or incurred after September 21, 1976" were excluded.

(2) Section 19.1 (2) [exception] of the federal Act does not apply for the purposes of this Act.

Application of

section 20 of federal Act – deductions

permitted in computing income from business or property

(1) The following provisions of

section 20 (1) of the federal Act do not apply for the purposes of this Act:

paragraph (a) [capital cost of property] ;

paragraph (b) [cumulative eligible capital amount] ;

paragraph (c) [interest] ;

paragraph (d) [compound interest] ;

paragraph (e) [expenses re financing] ;

paragraph (e.1) [annual fees, etc.] ;

paragraph (e.2) [premiums on life insurance – collateral] ;

paragraph (f) [discount on certain obligations] ;

paragraph (g) [share transfer and other fees] ;

paragraph (j) [repayment of loan by shareholder] ;

paragraph (l.1) [reserve for guarantees, etc.] ;

paragraph (m.1) [manufacturer's warranty reserve] ;

paragraph (o) [reserve for quadrennial survey] ;

paragraph (u) [patronage dividends] ;

paragraph (v) [mining taxes] ;

paragraph (z) [cancellation of lease] ;

paragraph (z.1) [cancellation of lease] ;

paragraph (bb) [fees paid to investment counsel] ;

paragraph (ff) [payments by farmers] ;

paragraph (hh) [repayments of inducements, etc.] ;

paragraph (hh.1) [repayment of obligation] ;

paragraph (kk) [exploration and development grants] ;

paragraph (ll) [repayment of interest] ;

paragraph (mm) [cost of substances injected in reservoir] ;

paragraph (nn) [Part XII.6 tax] ;

paragraph (nn.1) [recapture of investment tax credits] ;

paragraph (ss) [qualifying environmental trusts] ;

paragraph (tt) [acquisition of interests in qualifying environmental trusts] ;

paragraph (uu) [debt forgiveness] ;

paragraph (ww) [split income] ;

paragraph (xx) [derivative forward agreement] .

(2) In applying

section 20 (1) of the federal Act for the purposes of this Act, the following rules apply:

(

a) paragraph (l) [doubtful or impaired debts] of that

section is to be read

(

i) as if the reference in subparagraph (

i) of that paragraph to "(other than a debt to which subparagraph 20 (1) (l) (ii) applies)" were excluded, and

(ii) without reference to subparagraph (ii) of that paragraph;

(

b) paragraph (n) [reserve for unpaid amounts] of that

section is to be read as if the reference to ", except where the property is real or immovable property," were excluded;

(

c) paragraph (p) [bad debts] of that

section is to be read without reference to subparagraph (ii) of that paragraph;

(

d) paragraph (ee) (i) [utilities service connection] of that

section is to be read as if the reference to "property" were read as a reference to "capital investment property";

(

e) paragraph (vv) [countervailing or anti-dumping duty] of that

section is to be read as if the reference to "depreciable property" were read as a reference to "capital investment property".

(3) The following provisions of

section 20 of the federal Act do not apply for the purposes of this Act:

subsection (1.1) [application of s. 13 (21)] ;

subsection (1.2) [application of

definitions] ;

subsection (2) [borrowed money] ;

subsection (2.01) [limitation of expression "interest"] ;

subsection (2.1) [limitation of expression "interest"] ;

subsection (2.2) [limitation of expression "life insurance policy"] ;

subsection (2.3) [sectoral reserve] ;

subsection (2.4) [specified percentage] ;

subsection (3) [borrowed money] ;

subsection (4) [bad debts from dispositions of depreciable property] ;

subsection (4.1) [bad debts from dispositions of depreciable property] ;

subsection (4.2) [bad debts re eligible capital property] ;

subsection (4.3) [deemed allowable capital loss] ;

subsection (5) [sale of certain agreements included in proceeds of disposition] ;

subsection (5.1) [sale of certain agreements included in proceeds of disposition] ;

subsection (9) [application of para. (1) (cc)] ;

subsection (11) [foreign taxes on income from property exceeding 15%] ;

subsection (12) [foreign non-business income tax] ;

subsection (12.1) [foreign tax where no economic profit] ;

subsection (13) [deductions under subdivision i] ;

subsection (14) [accrued bond interest] ;

subsection (14.1) [interest on debt obligation] ;

subsection (16) [terminal loss] ;

subsection (16.1) [non-application of subsection (16)] ;

subsection (16.2) [reference to "taxation year" and "year" of individual] ;

subsection (16.3) [disposition after ceasing business] ;

subsection (19) [annuity contract] ;

subsection (20) [life insurance policy] ;

subsection (21) [debt obligation] ;

subsection (22) [deduction for negative reserves] ;

subsection (25) [manner of election] ;

subsection (27) [loans, etc., acquired in ordinary course of business] ;

subsection (27.1) [application of ss. 13 (21) and 138 (12)] ;

subsection (28) [deduction before available for use] ;

subsection (29) [deduction before available for use] ;

subsection (30) [specified reserve adjustment] .

(4) In applying

section 20 of the federal Act for the purposes of this Act, the following rules apply:

(a) subsection (7) [where paragraph (1) (

m) does not apply] of that

section is to be read

(

i) without reference to paragraph (

b) of that subsection, and

(ii) as if the reference in paragraph (

c) of that subsection to ", except that in computing an insurer's income for a taxation year from an insurance business, other than a life insurance business, carried on by it, there may be deducted as a policy reserve any amount that the insurer claims not exceeding the amount prescribed in respect of the insurer for the year" were excluded;

(b) subsection (8) (a) (ii) [when no deduction under paragraph (1) (

n) in respect of property] of that

section is to be read as if the reference to "was not resident in Canada and did not carry on the business in Canada" were read as a reference to "did not carry on the business";

(c) subsection (24) [amounts paid for undertaking future obligations] of that

section is to be read as if

(

i) the reference to "if the taxpayer and the other person jointly so elect," were excluded, and

(ii) the reference in paragraph (

a) of that subsection to "or 20 (1) (m.1)" were excluded.

Deduction of repaid financial incentives

38 Despite

section 18 (1) (a), (

b) and (h) [general limitations on deductions] of the federal Act, as that

section applies for the purposes of this Act, in computing a taxpayer's income for a taxation year from a business or property, the taxpayer may deduct an amount repaid by the taxpayer in the taxation year pursuant to a legal obligation to repay all or a portion of a financial incentive that

(

a) is included under

section 31 (e) [other income inclusions – financial incentives] of this Act in computing the taxpayer's income for the taxation year or a previous taxation year from the business or property, or

(

b) is, by reason of

section 31 (e) (i), (ii) or (iii), not included under

section 31 (

e) in computing the taxpayer's income for the taxation year or a previous taxation year, if the financial incentive relates to an outlay or expense that would, if the financial incentive had not been received, have been deductible in computing the taxpayer's income for the taxation year or a previous taxation year.

Application of

section 22 of federal Act –

sales of accounts receivable

39 In applying

section 22 (1) of the federal Act for the purposes of this Act, the following rules apply:

(

a) that

section is to be read as if the reference to "and including the debts arising from loans made in the ordinary course of the person's business if part of the person's ordinary business was the lending of money and that are still outstanding," were excluded;

(

b) paragraph (

d) of that

section is to be read as if the reference to "paragraph 12 (1) (i)" were read as a reference to "section 31 (

c) of this Act".

Application of

section 23 of federal Act –

sale of inventory

Section 23 (3) of the federal Act does not apply for the purposes of this Act.

Application of

section 34.1 of federal Act –

additional business income

(1) In applying

section 34.1 (1) and (2) of the federal Act for the purposes of this Act, that

section is to be read as follows:

(

a) as if the formula were as follows:

A x

(

b) without reference to the description of "B".

(2) Section 34.1 (8) [no additional income inclusion] and (9) [death of partner or proprietor] of the federal Act does not apply for the purposes of this Act.

Application of

section 34.2 of federal Act –

corporate partners – income adjustment

(1) The following provisions of

section 34.2 of the federal Act do not apply for the purposes of this Act:

subsection (6) [designation – qualified resource expense] ;

subsection (7) [no additional income – bankrupt] ;

subsection (8) [foreign affiliates] ;

subsection (9) [special case – multi-tier alignment] ;

subsection (11) [transitional reserve] ;

subsection (12) [inclusion of prior year reserve] ;

subsection (13) [no reserve] ;

subsection (14) [deemed partner] ;

subsection (15) [computing qualifying transitional income] ;

subsection (16) [qualifying transition income adjustment] ;

subsection (17) [adjustment of qualifying transitional income] ;

subsection (18) [anti-avoidance] .

(2) In applying the definition of "adjusted stub period accrual" in

section 34.2 (1) of the federal Act for the purposes of this Act, the following rules apply:

(

a) paragraph (

a) of that definition is to be read as if the reference to "if paragraph (

b) does not apply," were excluded;

(

b) the formula in paragraph (

a) of that definition is to be read as if the reference to "E +" were excluded;

(

c) the description of "A" in paragraph (

a) of that definition is to be read as if the reference to "or taxable capital gain" and the reference to "(other than any amount for which a deduction is available under

section 112 or 113)" were excluded;

(

d) the description of "B" in paragraph (

a) of that definition is to be read as if the reference to "or allowable capital loss – to the extent that the total of all allowable capital losses does not exceed the total of all taxable capital gains included in the description of A –" were excluded;

(

e) paragraph (

a) of that definition is to be read without reference to the description of "E";

(

f) the description of "F" in paragraph (

a) of that definition is to be read as if the reference to "(other than an amount included in the description of E)" were excluded;

(

g) that definition is to be read without reference to paragraph (

b) of that definition.

(3) In applying

section 34.2 of the federal Act for the purposes of this Act, the following rules apply:

(a) subsection (1) of that

section is to be read without reference to the

definitions of "eligible alignment income", "multi-tier alignment", "qualified resource expense", "qualifying transitional income", "single-tier alignment" and "specified percentage";

(b) subsection (2) [adjusted stub period accrual] of that

section is to be read as if

(

i) the reference to "and (9)" were excluded, and

(ii) the reference in paragraph (

c) of that subsection to "income, loss, taxable capital gain or allowable capital loss of the partnership" were read as a reference to "income or loss of the partnership";

(c) subsection (3) [new partner designation] of that

section is to be read as if, in the description of "A" in paragraph (

b) of that subsection, the reference to "(other than any amount for which a deduction is available under

section 112 or 113)" were excluded;

(d) subsection (4) [treatment in following year] of that

section is to be read without reference to paragraph (

b) of that subsection;

(e) subsection (5) [character of amounts] of that

section is to be read

(

i) as if, in paragraph (a) (

i) and (ii) of that subsection, the reference to ", and taxable capital gains from the disposition of property," and the reference to "and taxable capital gains" were excluded,

(ii) as if, in paragraph (a) (iii) of that subsection, the reference to "or is an allowable capital loss" and the reference to "and taxable capital gains" were excluded, and

(iii) without reference to paragraphs (a) (iv) and (v), (

b) and (

c) of that subsection;

(f) subsection (10) [designations] of that

section is to be read as if the reference to "any of the description of E or F of paragraph (a), the description of E or F of subparagraph (b) (

i) and the description of F or G of subparagraph (b) (ii)" were read as a reference to "the description of F of paragraph (a)".

Application of

section 34.3 of federal Act –

corporate partners – income shortfall adjustment

(1) In applying the definition of "actual stub period accrual" in

section 34.3 (1) of the federal Act for the purposes of this Act, the following rules apply:

(

a) the formula in that definition is to be read as if the reference to "- E" were excluded;

(

b) the description of "A" in that definition is to be read as if the reference to "or taxable capital gain" and the reference to "(other than any amount for which a deduction was available under

section 112 or 113)" were excluded;

(

c) the description of "B" in that definition is to be read as if the reference to "or allowable capital loss" and the reference to "(to the extent that the total of all allowable capital losses included under this description in respect of all qualifying partnerships for the taxation year does not exceed the corporation's share of all taxable capital gains of all qualifying partnerships for the taxation year)" were excluded;

(

d) the definition is to be read without reference to the description of "E".

(2) Section 34.3 (2) (b) [application of subsection (3)] of the federal Act does not apply for the purposes of this Act.

Division 3 – Other Sources of Income

Other sources of income

44 In computing a taxpayer's net operating income for a taxation year from an LNG source, the taxpayer must include the following amounts:

(

a) a payment or transfer of property made pursuant to the direction of, or with the concurrence of, the taxpayer to another person for the benefit of the taxpayer, or as a benefit that the taxpayer desired to have conferred on the other person, to the extent that the payment or transfer would have been included in computing the taxpayer's net operating income for the taxation year from the LNG source if that payment or transfer had been made to the taxpayer;

(

b) if the taxpayer has, at any time before the end of the taxation year, transferred or assigned to a person with whom the taxpayer was not dealing at arm's length the right to an amount that would, if the right had not been transferred or assigned to the person, have been included in computing the taxpayer's net operating income for the taxation year from the LNG source, the amount unless the income is from property and the taxpayer has also transferred or assigned the property;

(

c) an amount that is, under

Part 6 [Partnerships and their Members] , income of the taxpayer for the taxation year from another source described in this Division.

Division 4 – Deductions in Computing

Net Operating Income

Deductions

45 In computing a taxpayer's net operating income for a taxation year from an LNG source, the taxpayer may deduct the following amounts:

(

a) an amount paid by the taxpayer in the taxation year in respect of fees or expenses incurred in preparing, instituting or prosecuting an objection to, or an appeal in relation to, an assessment of tax, interest or penalties under this Act;

(

b) an amount that is, under

Part 6 [Partnerships and their Members] , a deduction of the taxpayer under this Division for the taxation year.

Division 5 – Investment Allowance

Investment allowance

(1) For the purpose of computing a taxpayer's net operating income or net operating loss for a taxation year from an LNG source, the taxpayer's investment allowance for the taxation year in respect of the LNG source is, subject to subsections (5) and (6), the amount, if any, determined by the following formula:

amount = rate x 0.75 x

(current balance + previous balance)

where

rate

the prescribed rate;

current balance

the balance of the taxpayer's adjusted capital investment account for the LNG source at the end of the taxation year;

previous balance

the balance of the taxpayer's adjusted capital investment account for the LNG source at the end of the preceding taxation year.

(2) For the purposes of subsection (1), the balance of a taxpayer's adjusted capital investment account for an LNG source at the end of a taxation year is, subject to subsection (3), the amount that would be the balance of the taxpayer's capital investment account for the LNG source at the end of the taxation year computed as if

(

a) intangible personal property were excluded from the meaning of capital investment property,

(

b) no amount were included under

section 60 (1) (b ) [recaptured negative capital investment account balance] in computing the balance of the taxpayer's capital investment account, and

(

c) no amount were deducted under

section 61 (1) (b) [capital investment account deduction] in computing the balance of the taxpayer's capital investment account.

(3) If the amount determined under subsection (2) as the balance of the taxpayer's adjusted capital investment account for an LNG source at the end of a taxation year is less than zero, the balance of the taxpayer's adjusted capital investment account for the LNG source at the end of a taxation year, for the purposes of subsection (1), is deemed to be zero.

(4) If a taxpayer makes an election under

section 85 [amounts included in capital investment account] , in applying this

section to a taxpayer in respect of an LNG source for the taxpayer's first taxation year, the balance of the taxpayer's adjusted capital investment account for the LNG source at the end of the preceding taxation year is the amount, if any, that is included in accordance with

section 85 in computing the balance of the taxpayer's capital investment account for the LNG source, if that amount is computed as if intangible personal property were excluded from the meaning of capital investment property.

(5) If the taxpayer has a taxation year that is less than 51 weeks, the taxpayer's investment allowance for the taxation year in respect of the LNG source is that proportion of the amount otherwise determined under subsection (1) that the number of days in the taxation year bears to 365.

(6) A taxpayer has no investment allowance for a taxation year in respect of an LNG source if in a previous taxation year the Oil and Gas Commission received notification of an intention to permanently cease operations at the applicable LNG facility.

Division 6 – Cost of Natural Gas

Definitions for this Division

47 In this Division:

"month" , in relation to a taxpayer's taxation year, means a calendar month or partial calendar month in the taxpayer's taxation year;

"notionally acquired" , in relation to a taxpayer, means

(

a) a deemed purchase under

section 49 by the taxpayer of natural gas at an LNG facility inlet meter, and

(

b) an acquisition by the taxpayer of natural gas at an LNG facility inlet meter from a person or partnership with whom the taxpayer was not dealing at arm's length.

Application of this Division

48 This Division applies for the purpose of determining the cost of natural gas notionally acquired by a taxpayer at the LNG facility inlet meters for an LNG facility, in order to compute the taxpayer's income for a taxation year from a business.

Deemed purchase of natural gas

49 If a taxpayer owns natural gas immediately before and after the natural gas passes through an LNG facility inlet meter for an LNG facility, the taxpayer is deemed, for the purposes of this Act, to purchase that natural gas at that LNG facility inlet meter.

Cost of natural gas notionally acquired each month

(1) For each month in a taxpayer's taxation year, the taxpayer must calculate the cost of all natural gas notionally acquired by the taxpayer in that month at the LNG facility inlet meters for an LNG facility.

(2) For the purposes of this Act, the cost of all natural gas notionally acquired in a month by a taxpayer at the LNG facility inlet meters for an LNG facility is the amount equal to the total of the following:

(

a) the notional cost determined under

section 51 of natural gas notionally acquired in the month by the taxpayer at the LNG facility inlet meters for the LNG facility;

(

b) the cost adjustment determined under

section 52 for natural gas notionally acquired in the month by the taxpayer at the LNG facility inlet meters for the LNG facility, which adjustment may be a positive or negative amount;

(

c) the transportation cost determined under

section 53 for natural gas notionally acquired in the month by the taxpayer at the LNG facility inlet meters for the LNG facility.

Notional cost of natural gas

notionally acquired in month

(1) For the purposes of

section 50 (2) (a), the notional cost of natural gas notionally acquired in a month by a taxpayer at the LNG facility inlet meters for an LNG facility is the amount determined by the following formula:

notional cost =

energy

content

fuel and

losses adjustment

reference

price

differential

amount

where

energy content

the amount, expressed in gigajoules, determined by multiplying the following:

(

a) the volume of natural gas notionally acquired in the month by the taxpayer at the LNG facility inlet meters for the LNG facility;

(

b) the heating value of that natural gas as determined at the LNG facility inlet meters;

fuel and losses adjustment

the total determined by adding 100% and the taxpayer's pipeline fuel and losses adjustment, determined in accordance with the regulations, in respect of the LNG facility and for the month, which adjustment may be a positive or negative percentage;

reference price

the amount per gigajoule determined for the month by the minister charged with the administration of the Petroleum and Natural Gas Act , which amount is, in the opinion of that minister, the fair market value of natural gas acquired in the month at the reference point, as determined in accordance with the regulations;

differential amount

subject to subsection (2) of this section, the pipeline differential amount for the month, which amount

(

a) represents the estimated cost of transporting natural gas notionally acquired in the month between the reference point and the feedstock pipeline inlet,

(

b) is determined in accordance with the regulations,

(

c) may be a positive or negative amount, and

(

d) is expressed per gigajoule.

(2) For the purposes of subsection (1), a prescribed LNG facility has a pipeline differential amount equal to zero.

Cost adjustment for natural gas

notionally acquired in month

(1) In this section, "designated purchase" , in relation to a taxpayer, means an acquisition of natural gas by the taxpayer if the natural gas was acquired

(

a) from a person or partnership with whom the taxpayer was dealing at arm's length, and

(

b) while the natural gas was in a feedstock pipeline.

(2) For the purposes of

section 50 (2) (b), the cost adjustment for natural gas notionally acquired in a month by a taxpayer at the LNG facility inlet meters for an LNG facility is the amount equal to the amount, which may be a positive or negative amount, determined by multiplying the following:

(

a) the adjusted price determined under subsection (3) of this

section for natural gas notionally acquired in the month by the taxpayer at the LNG facility inlet meters for the LNG facility;

(

b) the lesser of

(

i) the energy content determined under

section 51 for the natural gas notionally acquired in the month by the taxpayer at the LNG facility inlet meters for the LNG facility, and

(ii) the purchased energy content determined under subsection (3) of this

section for natural gas that was a designated purchase in the month by the taxpayer;

(

c) the fuel and losses adjustment determined under

section 51 for the natural gas notionally acquired in the month by the taxpayer at the LNG facility inlet meters for the LNG facility.

(3) For the purposes of subsection (2) (a), the adjusted price for natural gas notionally acquired in a month by a taxpayer at the LNG facility inlet meters for an LNG facility is the amount determined by the following formula:

adjusted price =

cost

reference

price

differential

amount

purchased energy content

where

cost

the total of all amounts each of which is the amount paid or payable by the taxpayer in relation to a designated purchase in the month by the taxpayer of natural gas;

purchased energy content

the amount, expressed in gigajoules, of natural gas that was a designated purchase of natural gas by the taxpayer in the month;

reference price

the reference price under

section 51 applicable to the month;

differential amount

the differential amount under

section 51 applicable to the month.

Transportation cost for natural gas

notionally acquired in month

53 For the purposes of

section 50 (2) (c), the transportation cost for the delivery of natural gas notionally acquired in a month by a taxpayer at the LNG facility inlet meters for an LNG facility is the total of all amounts each of which is an amount paid or payable by the taxpayer for the delivery of that natural gas through a feedstock pipeline.

Part 4 – Computation of Net Income

Division 1 – Net Income

Net income

(1) For the purposes of this Act, a taxpayer's net income for a taxation year from an LNG source is equal to the amounts included under subsection (2) in computing net income less the amounts deducted under subsection (3) in computing net income.

(2) A taxpayer must include the following amounts in computing the taxpayer's net income for a taxation year from an LNG source:

(

a) the taxpayer's net operating income for the taxation year from the LNG source;

(

b) any amount to be included under

section 55 [recaptured negative capital investment account balance] for the taxation year in relation to the taxpayer's capital investment account for the LNG source.

(3) A taxpayer must deduct the following amounts in computing the taxpayer's net income for a taxation year from an LNG source:

(

a) any amount to be deducted under

section 56 [net operating loss account deduction] for the taxation year in relation to the taxpayer's net operating loss account for the LNG source;

(

b) any amount to be deducted under

section 57 [capital investment account deduction] for the taxation year in relation to the taxpayer's capital investment account for the LNG source.

Recaptured negative capital investment account balance

55 If, at the end of a taxation year, the balance of a taxpayer's capital investment account for an LNG source is less than zero, the taxpayer must include in the taxpayer's net income for the taxation year from the LNG source the amount by which the balance is less than zero.

Net operating loss account deduction

(1) This

section applies to a taxpayer for a taxation year in respect of an LNG source if

(

a) the balance of the taxpayer's net operating loss account for a taxation year for the LNG source is greater than zero, and

(

b) the taxpayer's net income for the taxation year from the LNG source would be greater than zero if

section 54 were read without reference to

section 54 (3).

(2) If this

section applies to a taxpayer for a taxation year in respect of an LNG source, in computing the taxpayer's net income for the taxation year from the LNG source, the taxpayer must deduct from the taxpayer's net operating loss account an amount equal to the lesser of the following amounts:

(

a) the balance of the taxpayer's net operating loss account for the taxation year for the LNG source;

(

b) the amount that reduces to zero the taxpayer's net income for the taxation year from the LNG source.

Capital investment account deduction

(1) This

section applies to a taxpayer for a taxation year in respect of an LNG source if

(

a) the balance of the taxpayer's capital investment account for the LNG source at the end of the taxation year is greater than zero, and

(

b) the taxpayer's net income for the taxation year from the LNG source would be greater than zero if

section 54 were read without reference to

section 54 (3) (b).

(2) If this

section applies to a taxpayer for a taxation year in respect of an LNG source, in computing the taxpayer's net income for the taxation year from the LNG source, after deducting any amount determined under

section 56 for the taxation year in respect of the LNG source, the taxpayer must deduct from the taxpayer's capital investment account for the LNG source an amount equal to the lesser of the following amounts:

(

a) the balance of the taxpayer's capital investment account for the LNG source at the end of the taxation year;

(

b) the amount that reduces to zero the taxpayer's net income for the taxation year from the LNG source.

Division 2 – Net Operating Loss Account

Net operating loss account balance

58 The balance of a taxpayer's net operating loss account for a taxation year for an LNG source is the amount equal to the total of all amounts each of which is a net operating loss of the taxpayer from the LNG source for the taxation year or for a previous taxation year less the total of all amounts deducted by the taxpayer under

section 54 (3) (

a) in respect of the LNG source for previous taxation years.

Division 3 – Capital Investment Account

Capital investment account balance

59 The balance of a taxpayer's capital investment account for an LNG source as at a particular time is equal to the amounts included under

section 60 in computing the balance of that capital investment account less the amounts deducted under

section 61 in computing the balance of that capital investment account.

Amounts included in capital investment account

(1) A taxpayer must include the following amounts in computing the balance of the taxpayer's capital investment account for an LNG source as at a particular time:

(

a) the total of all amounts each of which is the capital cost to the taxpayer of capital investment property acquired by the taxpayer before that time;

(

b) the total of all amounts each of which is an amount included under

section 54 (2) (b) [recaptured negative capital investment account balance] in computing the taxpayer's net income from the LNG source for a taxation year ending before that time;

(

c) the total of all amounts each of which is that portion of a financial incentive, in respect of or for the acquisition of a capital investment property of the taxpayer, repaid by the taxpayer before that time pursuant to an obligation to repay all or a portion of the financial incentive, including a repayment of a financial incentive by the taxpayer after the disposition of the capital investment property to which the financial incentive relates, but a repaid portion of a financial incentive is included in the total under this paragraph only to the extent that

(

i) the amount included under paragraph (

a) as the capital cost to the taxpayer of the capital investment property does not take into account the repayment of the financial incentive, and

(ii) the amount of the proceeds of disposition included in determining an amount under

section 61 (1) (

a) does not take into account the repayment of the financial incentive;

(

d) the total of all amounts each of which is an amount paid by the taxpayer before that time as or on account of an existing or proposed countervailing or anti-dumping duty in respect of capital investment property;

(

e) the total of all amounts each of which

(

i) is a debt owing to the taxpayer,

(ii) is in respect of proceeds of disposition, which are included in determining an amount under

section 61 (1) (a), of capital investment property disposed of by the taxpayer to a person with whom the taxpayer was dealing at arm's length, and

(iii) is established by the taxpayer to have become a bad debt before that time.

(2) In subsection (1) (a), (

c) and (d), "before that time" does not include the period before the taxpayer's first taxation year in respect of the LNG source.

(3) In computing the balance of a taxpayer's capital investment account for an LNG source as at a particular time, the taxpayer may not include an amount paid or payable by the taxpayer before that time in respect of a hedging transaction.

(4) Despite any other provision of this Division, in computing the balance of a taxpayer's capital investment account for an LNG source as at a particular time, the taxpayer may not include a financing charge paid or payable by the taxpayer before that time.

Amounts deducted from capital investment account

(1) A taxpayer must deduct the following amounts in computing the balance of the taxpayer's capital investment account for an LNG source as at a particular time:

(

a) the total of all amounts each of which is an amount, in respect of a disposition before that time of capital investment property of the taxpayer, that is the proceeds of disposition of the property less any outlays and expenses to the extent that they were made or incurred by the taxpayer for the purpose of making the disposition;

(

b) the total of all amounts each of which is an amount deducted under

section 54 (3) (b) [capital investment account deduction] in computing the taxpayer's net income from the LNG source for a taxation year ending before that time;

(

c) the total of all amounts each of which is a financial incentive that the taxpayer received or was entitled to receive before that time, in respect of or for the acquisition of a capital investment property of the taxpayer for which an amount is included under

section 60 (1) (a), or would have been included under that

section but for the financial incentive, including an amount that is a financial incentive received by the taxpayer after the disposition of the capital investment property to which the financial incentive relates, but a financial incentive is included in the total under this paragraph only to the extent that the amount included under

section 60 (1) (

a) as the capital cost to the taxpayer of the capital investment property does not take into account the financial incentive;

(

d) the total of all amounts each of which is an amount received by the taxpayer before that time in respect of a refund of an amount included in the balance of the capital investment account under

section 60 (1) (d);

(

e) the total of all amounts each of which is an amount received by the taxpayer before that time on account of a debt in respect of which an amount was included in the balance of the capital investment account under

section 60 (1) (e).

(2) In subsection (1) (

a) and (c), "before that time" does not include the period before the taxpayer's first taxation year in respect of the LNG source.

(3) In computing the balance of a taxpayer's capital investment account for an LNG source as at a particular time, the taxpayer may not deduct an amount received or receivable before that time in respect of a hedging transaction.

Rules relating to change in or multiple use of property

62 The following rules apply for the purposes of this Division:

(

a) if a taxpayer has, for the purpose of gaining or producing income from an LNG source, acquired property, other than land, that is capital investment property and has begun at a later time to use the property for some other purpose, the taxpayer is deemed

(

i) to have disposed of capital investment property at that later time for proceeds of disposition equal to its fair market value at that time, and

(ii) to have reacquired that property immediately after that later time for some other purpose and for an amount equal to that fair market value;

(

b) if a taxpayer has acquired property for a purpose other than gaining or producing income from an LNG source and has begun at a later time to use the property for the purpose of gaining or producing income from an LNG source, the taxpayer is deemed to have acquired at that later time capital investment property at a capital cost to the taxpayer equal to the fair market value of the property at that later time;

(

c) if at any time a taxpayer has acquired property, other than land, that is to be regularly used by the taxpayer in part for the purpose of gaining or producing income from an LNG source and in part for some other purpose, the taxpayer is deemed to have acquired as capital investment property at that time the proportion of the property that the use that will be regularly made of the property for gaining or producing income from an LNG source is of the whole use that will be regularly made of the property at a capital cost to the taxpayer equal to the same proportion of the capital cost to the taxpayer of the whole property;

(

d) if property described in paragraph (

c) has been disposed of, the proceeds of disposition of the proportion of the property deemed to have been acquired as capital investment property is deemed to be the same proportion of the proceeds of disposition of the whole property;

(

e) if at any time a taxpayer has acquired land that is to be regularly used by the taxpayer in part for the purpose of gaining or producing income from an LNG source and in part for some other purpose, the taxpayer is deemed to have acquired the land at that time only for the purpose of gaining or producing income from an LNG source;

(

f) if, at any time after a taxpayer acquired land that is to be used, in whole or in part, for the purpose of gaining or producing income from an LNG source, the land is not used or held by the taxpayer, in whole or in part, for the purpose of gaining or producing income from the LNG source, the taxpayer is deemed

(

i) to have disposed of that land at that later time for proceeds of disposition equal to its fair market value at that time, and

(ii) to have reacquired that land immediately after that later time for some other purpose and for an amount equal to that fair market value;

(

g) if, at any time after a taxpayer has acquired property other than land, the relation between the use the taxpayer regularly made of the property for gaining or producing income from an LNG source and the use the taxpayer regularly made of the property for other purposes has changed, the following rules apply:

(

i) if the use the taxpayer regularly made of the property for the purpose of gaining or producing income from an LNG source has increased, the taxpayer is deemed to have acquired at that time capital investment property at a capital cost to the taxpayer equal to the proportion of the fair market value of the property at that time that the amount of the increase in the use the taxpayer regularly made of the property for that purpose is of the whole use the taxpayer regularly made of the property;

(ii) if the use the taxpayer regularly made of the property for the purpose of gaining or producing income from an LNG source has decreased, the taxpayer is deemed to have disposed at that time of capital investment property for proceeds of disposition equal to the proportion of the fair market value of the property at that time that the amount of the decrease in the use the taxpayer regularly made of the property for that purpose is of the whole use the taxpayer regularly made of the property;

(

h) if, immediately before the closure date for an LNG facility, a taxpayer has capital investment property in respect of the LNG facility, the taxpayer is deemed

(

i) to have disposed of the capital investment property immediately before the closure date for proceeds of disposition equal to its fair market value at that time, and

(ii) to have reacquired that property immediately after that time for some other purpose and for an amount equal to that fair market value.

Rules relating to automobiles

(1) For the purposes of this Division, the following rules apply in relation to automobiles:

(

a) if the cost to a taxpayer of an automobile exceeds the designated automobile amount, the capital cost to the taxpayer of the automobile is deemed to be the designated automobile amount;

(

b) despite paragraph (a), if an automobile is acquired by a taxpayer at any time from a person with whom the taxpayer does not deal at arm's length, the capital cost to the taxpayer of the automobile is deemed to be the lesser of the fair market value of the automobile at that time and the designated automobile amount;

(

c) if an automobile is disposed of by a taxpayer at any time, the proceeds of disposition of the automobile at that time, for the purposes of

section 61 (1) (a), may not exceed the amount included under

section 60 (1) (

a) as the capital cost to the taxpayer of the automobile;

(

d) if an amount described in

section 60 (1) (

e) is a debt owing to the taxpayer in respect of a disposition of an automobile by the taxpayer, the amount included under that

section at that time may not exceed the lesser of

(

i) the amount established by the taxpayer to have become a bad debt before that time, and

(ii) the proceeds of disposition at that time from the disposition of the automobile as determined under paragraph (

c) of this subsection;

(

e) if an amount is received by a taxpayer before a particular time on account of a debt in respect of which an amount determined in accordance with paragraph (

d) was included under

section 60 (1) (

e) in computing the balance of the capital investment account, the amount received, for the purposes of

section 61 (1) (e), may not exceed the amount included under

section 60 (1) (

e) in respect of that debt.

(2) If a person owns an automobile jointly with one or more other persons, each designated automobile amount referred to in subsection (1) (

a) and (

b) is to be read as a reference to the proportion of that amount that the fair market value of the first-mentioned person's interest in the automobile is of the fair market value of the interests in the automobile of all those persons.

Rules relating to leasehold interests

(1) The following rules apply for the purposes of

section 60 (1) (a) [amounts included in capital investment account] :

(

a) if at any time a taxpayer acquires a leasehold interest in property that is to be used for the purpose of gaining or producing income from an LNG source, the taxpayer is deemed to have acquired at that time capital investment property with a capital cost to the taxpayer equal to the amount, if any, paid or payable by the taxpayer in respect of the acquisition of the leasehold interest;

(

b) if at any time an outlay is made by a taxpayer for or in respect of an improvement or alteration to property in which a leasehold interest is held, the taxpayer must include the amount in the capital cost to the taxpayer of capital investment property.

(2) Subject to subsection (3), the following rules apply for the purposes of

section 61 (1) (a) [amounts deducted from capital investment account] :

(

a) if at any time a lease expires or is cancelled and immediately before that time the property that was the subject of the lease was used for the purpose of gaining or producing income from an LNG source, the taxpayer who was the lessee immediately before that time is deemed to have disposed of capital investment property at that time for proceeds of disposition equal to the amount, if any, received or receivable by the taxpayer in respect of the expiry or cancellation of the lease;

(

b) if at any time a taxpayer disposes of all or part of a leasehold interest held by the taxpayer as lessee immediately before that time and immediately before that time the property that was the subject of the lease was used by the taxpayer for the purpose of gaining or producing income from an LNG source, the taxpayer is deemed to have disposed of capital investment property at that time for proceeds of disposition equal to the amount, if any, received or receivable by the taxpayer in respect of the disposition of the leasehold interest.

(3) In applying subsection (2) in relation to land that was the subject of the lease, paragraphs (

a) and (

b) of that subsection are to be read as if the reference to "was used" were read as a reference to "was used or held".

Amount in respect of disposition of property that is replaced

(1) In this section:

"former property" , in relation to a taxpayer, means capital investment property that is disposed of by the taxpayer;

"initial year" means the taxation year referred to in subsection (2) (b).

(2) This

section applies to a taxpayer for a taxation year in respect of former property if all of the following requirements are met:

(

a) the proceeds of disposition of the former property were proceeds referred to in paragraph (b), (

c) or (

d) of the definition of "proceeds of disposition" in

section 13 (21) of the federal Act, as that definition applies for the purposes of this Act under the definition of "proceeds of disposition" in

section 1 of this Act;

(

b) an amount in respect of the disposition in a taxation year of the former property would, but for this section, be the amount determined for the purposes of

section 61 (1) (a) [amounts deducted from capital investment account] in respect of the disposition of the former property;

(

c) the taxpayer elects to apply this

section in the taxpayer's tax return filed for the taxation year in which the taxpayer acquires a capital investment property that is a replacement property for the taxpayer's former property.

(3) For the purposes of this section, a particular capital investment property of a taxpayer is a replacement property for a former property of the taxpayer if all of the following requirements are met:

(

a) it is reasonable to conclude that the particular capital investment property was acquired by the taxpayer to replace the former property;

(

b) the particular capital investment property was acquired by the taxpayer for a use that is the same as or similar to the use the taxpayer made of the former property;

(

c) the former property was used by the taxpayer for the purpose of gaining or producing income from an LNG source and the particular capital investment property was acquired by the taxpayer for the purpose of gaining or producing income from the LNG source;

(

d) the particular capital investment property

(

i) was acquired by the taxpayer before the later of the end of the third taxation year following the initial year and the end of a period approved by the minister, and

(ii) has not been disposed of by the taxpayer before the time at which the taxpayer disposed of the former property.

(4) If this

section applies to a taxpayer in respect of former property,

(

a) the amount otherwise determined for the purposes of

section 61 (1) (

a) in respect of the disposition of the former property is reduced for the initial year by the lesser of

(

i) the amount otherwise determined for the purposes of

section 61 (1) (a), for the initial year, in respect of the disposition of the former property, and

(ii) the amount that has been used by the taxpayer to acquire the replacement property, and

(

b) the amount of the reduction determined under paragraph (

a) of this subsection is deemed to be proceeds of disposition of a capital investment property of the taxpayer from a disposition made on the later of

(

i) the time the replacement property was acquired by the taxpayer, and

(ii) the time the former property was disposed of by the taxpayer.

Proceeds of disposition if all or portion payable in future

(1) In this section, "disposition year" means the taxation year in which the capital investment property was disposed of by the taxpayer.

(2) Subject to subsections (3) and (4), if a taxpayer disposes of capital investment property and all or a portion of the proceeds of disposition of the capital investment property are payable to the taxpayer after the end of the disposition year, in computing the balance of the taxpayer's capital investment account for an LNG source as at a particular time, the proceeds of disposition of the capital investment property is equal to the amount that would otherwise be the proceeds of disposition of the capital investment property reduced by the lesser of

(

a) a reasonable portion of the amount of the proceeds of disposition of the capital investment property that are payable to the taxpayer after the end of the last taxation year that ended at or before that time, and

(

b) the least of the following applicable amounts:

(

i) if the disposition year ends at or before that time, 80% of the proceeds of disposition;

(ii) if the first taxation year after the disposition year ends at or before that time, 60% of the proceeds of disposition;

(iii) if the second taxation year after the disposition year ends at or before that time, 40% of the proceeds of disposition;

(iv) if the third taxation year after the disposition year ends at or before that time, 20% of the proceeds of disposition;

(

v) for any other taxation year that ends at or before that time, $0.

(3) This

section does not apply to a taxpayer in respect of a sale of capital investment property of the taxpayer if

(

a) the purchaser of the capital investment property that was sold is a corporation that, immediately after the sale,

(

i) was controlled, directly or indirectly, in any manner whatever, by the taxpayer,

(ii) was controlled, directly or indirectly, in any manner whatever, by a person or group of persons by whom the taxpayer was controlled, directly or indirectly, in any manner whatever, or

(iii) controlled the taxpayer, directly or indirectly, in any manner whatever, if the taxpayer is a corporation, or

(

b) the purchaser of the capital investment property that was sold is a partnership in which the taxpayer was, immediately after the sale, a majority-interest partner.

(4) This

section does not apply to a taxpayer for a taxation year that ends at or before the particular time if,

(

a) in relation to the disposition year, the taxpayer was exempt from tax under this Act at the end of that year,

(

b) in relation to any taxation year after the disposition year, the taxpayer was exempt from tax under this Act at any time in that taxation year, or

(

c) in relation to the particular taxation year, that taxation year is the taxpayer's last taxation year, as defined in

section 121, in respect of the LNG source.

Part 5 – Rules Relating to Parts 3 and 4

Division 1 – Application of Federal Act Rules Relating to

Computation of Income

Application of federal provisions –

rules relating to computation of income

(1) Subject to this Act, Subdivision f of Division B of

Part I of the federal Act applies for the purposes of this Act.

(2) The following sections in Subdivision f of Division B of

Part I of the federal Act do not apply for the purposes of this Act:

section 67 [general limitation re expenses] ;

section 67.2 [interest on money borrowed for passenger vehicle] ;

section 67.4 [more than one owner or lessor] ;

section 70 [death of a taxpayer] ;

section 72 [reserves, etc., for year of death] ;

section 73 [inter vivos transfers by individuals] ;

section 74.1 [transfers or loans] ;

section 74.2 [gain or loss deemed that of lender or transferor] ;

section 74.3 [transfers or loans to a trust] ;

section 74.4 [transfers or loans to corporations] ;

section 74.5 [transfers or loans] ;

section 75 [trusts] ;

section 75.1 [gain or loss deemed that of transferor] ;

section 75.2 [rules applicable with respect to "qualifying trust annuity"] ;

section 76.1 [non-resident moving debt] ;

section 79 [surrender of property] ;

section 79.1 [seizure of property] ;

section 80 [debt forgiveness rules] ;

section 80.01 [debt forgiveness rules] ;

section 80.02 [debt forgiveness rules – distress preferred shares] ;

section 80.03 [surrender of capital property] ;

section 80.04 [debt forgiveness rules] ;

section 80.1 [expropriation assets] ;

section 80.2 [rules relating to time of payment] ;

section 80.3 [income deferral respecting livestock] ;

section 80.4 [loans] ;

section 80.5 [deemed interest] ;

section 80.6 [synthetic disposition] .

General limitation respecting expenses

68 In computing net income, net operating income or net operating loss, no amount may be taken into account in respect of an outlay or expense in respect of which any amount is otherwise taken into account under this Act in computing net income, net operating income or net operating loss, except to the extent that the outlay or expense was reasonable in the circumstances.

Application of

section 67.1 of federal Act –

expenses for food

69 In applying

section 67.1 (1) of the federal Act for the purposes of this Act, that

section is to be read as if the reference to "other than sections 62, 63, 118.01 and 118.2," were excluded.

Application of

section 67.3 of federal Act –

limitation re cost of leasing passenger vehicle

(1) In this section, "specified amount" means the following amounts referred to in

section 67.3 of the federal Act, as that

section applies for the purposes of this Act:

(

a) the amount prescribed under

section 7307 (3) (

b) of the federal regulation;

(

b) the designated automobile amount;

(

c) the amount prescribed under

section 7307 (4) of the federal regulation.

(2) In applying

section 67.3 of the federal Act for the purposes of this Act, the following rules apply:

(

a) the following provisions of that

section are to be read as if the reference to "income" were read as a reference to "net operating income or net operating loss":

(

i) paragraph (b);

(ii) the description of "C" in paragraph (c);

(iii) the description of "A" in paragraph (d);

(

b) the description of "A" in paragraph (

c) of that

section is to be read as follows:

A is the amount prescribed under

section 7307 (3) (

b) of the federal regulation, ;

(

c) the description of "B" in paragraph (

d) of that

section is to be read as follows:

B is the designated automobile amount, ;

(

d) the description of "C" in paragraph (

d) of that

section is to be read as if the reference to "$23,529 (or such other amount as is prescribed)" were read as a reference to "the amount prescribed under

section 7307 (4) of the federal regulation".

(3) If a person owns or leases a motor vehicle jointly with one or more other persons, each specified amount is to be read as a reference to the proportion of the amount that the fair market value of the first-mentioned person's interest in the vehicle is of the fair market value of the interests in the vehicle of all those persons.

Application of

section 67.5 of federal Act –

non-deductibility of illegal payments

71 In applying

section 67.5 (1) of the federal Act for the purposes of this Act, that

section is to be read as if the reference to "In computing income, no deduction shall be made" were read as a reference to "In computing net income, net operating income or net operating loss, no amount may be taken into account".

Application of

section 67.6 of federal Act –

non-deductibility of fines and penalties

72 In applying

section 67.6 of the federal Act for the purposes of this Act, that

section is to be read as if

(

a) the reference to "In computing income, no deduction shall be made" were read as a reference to "In computing net income, net operating income or net operating loss, no amount may be taken into account", and

(

b) the reference to "(other than a prescribed fine or penalty)" were excluded.

Application of

section 68 of federal Act – allocation of

amounts in consideration for property or services

73 In applying

section 68 of the federal Act for the purposes of this Act, that

section is to be read

(

a) as if the reference to "for a restrictive covenant as defined by subsection 56.4 (1) granted by a taxpayer" were excluded, and

(

b) without reference to paragraph (

c) of that section.

Application of

section 69 of federal Act –

inadequate considerations

(1) The following provisions of

section 69 of the federal Act do not apply for the purposes of this Act:

subsection (1.1) [inadequate consideration where s. 70 (3) applies] ;

subsection (5) [shareholder appropriations] ;

subsection (11) [deemed proceeds of disposition] ;

subsection (12) [reassessments] ;

subsection (13) [amalgamation or merger] ;

subsection (14) [new taxpayer] .

(2) Section 69 of the federal Act, as that

section applies for the