HONOURABLE MICHAEL DE JONG
MINISTER OF FINANCE

BILL 6 – 2014

LIQUEFIED NATURAL GAS INCOME TAX ACT

Contents
Part 1 — Interpretation
  1  Definitions
  2  Definitions in federal Act and federal regulation
  3  References in applicable provisions of federal Act and federal regulation
  4  Provisions of Act applied and interpreted consistent with federal Act
  5  Reference aids in relation to federal Act and federal regulation
  6  References to income, loss and capital investment property
  7  LNG facility
  8  LNG plant
  9  Taxation year
  10  Fiscal period
  11  Application of federal provisions — relationships between persons
  12  Assistance from government and repayment of assistance
  13  Trusts and beneficiaries
  14  Series of transactions
  15  Limitation respecting inclusions, deductions and amounts paid
  16  Application of other federal provisions
Part 2 — Application of This Act and Liability for Tax
  17  Application of this Act
  18  Tax on net income
  19  Deduction from tax on net income
  20  Tax pool balance
  21  Tax on net operating income
  22  Exemptions from tax
Part 3 — Computation of Net Operating Income or Net Operating Loss
  Division 1 — Basic Rules
  23  Net operating income
  24  Net operating loss
  25  Income or loss from a source
  Division 2 — Income or Loss from a Business or Property
  26  Income or loss for a taxation year
  27  Application of federal provisions — income or loss from business or property
  28  Valuation of inventory
  29  Application of section 11 of federal Act — reference to taxation year
  30  Application of section 12 of federal Act — income inclusions
  31  Other income inclusions
  32  Income exclusions
  33  Application of section 18 of federal Act — general limitations on deductions
  34  Other limitations on deductions
  35  Application of section 19.01 of federal Act — limitation re advertising expense in periodicals
  36  Application of section 19.1 of federal Act — limitation re advertising expense on broadcasting undertaking
  37  Application of section 20 of federal Act — deductions permitted in computing income from business or property
  38  Deduction of repaid financial incentives
  39  Application of section 22 of federal Act — sales of accounts receivable
  40  Application of section 23 of federal Act — sale of inventory
  41  Application of section 34.1 of federal Act — additional business income
  42  Application of section 34.2 of federal Act — corporate partners — income adjustment
  43  Application of section 34.3 of federal Act — corporate partners — income shortfall adjustment
  Division 3 — Other Sources of Income
  44  Other sources of income
  Division 4 — Deductions in Computing Net Operating Income
  45  Deductions
  Division 5 — Investment Allowance
  46  Investment allowance
  Division 6 — Cost of Natural Gas
  47  Definitions for this Division
  48  Application of this Division
  49  Deemed purchase of natural gas
  50  Cost of natural gas notionally acquired each month
  51  Notional cost of natural gas notionally acquired in month
  52  Cost adjustment for natural gas notionally acquired in month
  53  Transportation cost for natural gas notionally acquired in month
Part 4 — Computation of Net Income
  Division 1 — Net Income
  54  Net income
  55  Recaptured negative capital investment account balance
  56  Net operating loss account deduction
  57  Capital investment account deduction
  Division 2 — Net Operating Loss Account
  58  Net operating loss account balance
  Division 3 — Capital Investment Account
  59  Capital investment account balance
  60  Amounts included in capital investment account
  61  Amounts deducted from capital investment account
  62  Rules relating to change in or multiple use of property
  63  Rules relating to automobiles
  64  Rules relating to leasehold interests
  65  Amount in respect of disposition of property that is replaced
  66  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
  67  Application of federal provisions — rules relating to computation of income
  68  General limitation respecting expenses
  69  Application of section 67.1 of federal Act — expenses for food
  70  Application of section 67.3 of federal Act — limitation re cost of leasing passenger vehicle
  71  Application of section 67.5 of federal Act — non-deductibility of illegal payments
  72  Application of section 67.6 of federal Act — non-deductibility of fines and penalties
  73  Application of section 68 of federal Act — allocation of amounts in consideration for property or services
  74  Application of section 69 of federal Act — inadequate considerations
  75  Application of section 76 of federal Act — security in satisfaction of income debt
  76  Application of section 78 of federal Act — unpaid amounts
  Division 2 — Transfer Pricing
  77  Interpretation for this Division
  78  Taxpayer's self-dealings
  79  Transfer pricing adjustment
  80  Penalty
  81  Contemporaneous documentation supporting reasonable efforts
  82  Provisions not applicable if section 79 applies
  Division 3 — Computations for First Taxation Year
  83  Definitions for this Division
  84  Amounts included in net operating loss account
  85  Amounts included in capital investment account
  Division 4 — Amalgamation of Corporations
  86  Definitions for this Division
  87  Application of this Division
  88  Deemed new corporation and taxation years
  89  New corporation's tax pool balance
  90  New corporation a continuation of predecessor corporations
  91  Valuation of inventory
  92  Rules relating to new corporation's income from a business or property
  93  New corporation's net operating loss account balance
  94  Rule relating to new corporation's capital investment account balance
  95  Rule relating to closure tax credit
  96  Notice to minister
Part 6 — Partnerships and Their Members
  Division 1 — General Rules
  97  Reference to person or taxpayer who is member of partnership
  98  Application of this Part
  99  General rules
  100  Fiscal period of terminated partnership
  101  Former member deemed to be member of partnership
  102  Election made for partnership members
  103  Agreement to share amounts
  104  Contribution of property to partnership
  105  Disposition of partnership property
  106  Distribution of partnership property
  Division 2 — Computation of Member's Net Operating Income or Net Operating Loss
  107  Income and loss of partnership
  108  Deemed receipt of financial incentive by partnership
  109  Allocation of share of income or loss to former partner
  110  Investment allowance — partnership's adjusted capital investment account balance
  Division 3 — Computation of Member's Net Income
  111  Partnership's capital investment account
  112  Receipt of financial incentive — capital investment property
  113  Deemed acquisition or disposition of capital investment property — partnership's capital investment account
  114  Deemed acquisition or disposition of capital investment property — interest in a partnership
  Division 4 — Member's Closure Tax Credit
  115  Eligible partnership expenditure
Part 7 — Trusts
  116  Trust taxed as individual
  117  Limitation on deductions by trust
  118  Deemed receipt of financial incentive by trust
  119  Contribution of property to trust
  120  Disposition of trust property
Part 8 — Closure Tax Credit
  121  Definitions for this Part
  122  Tax credit
  123  Deemed payment
  124  Filing requirements
Part 9 — Regulations
  125  General regulation-making authority
  126  Application of federal regulation
  127  Regulations in relation to the cost of natural gas
Part 10 — Amendments to Income Tax Act
  128-129  Amendments to Income Tax Act
  130  Commencement

This Bill imposes a tax, effective for taxation years beginning on or after January 1, 2017, on income derived from liquefaction activities carried out at or in respect of an LNG facility in British Columbia.

For taxation years that begin on or after January 1, 2017 and before January 1, 2037, tax is imposed at a rate of 3.5% of a taxpayer's net income. For taxation years that begin on or after January 1, 2037, tax is imposed at a rate of 5% of a taxpayer's net income. A taxpayer's net income is the total of the taxpayer's net operating income and recaptured capital investment amounts less the taxpayer's net operating losses and capital investment amounts.

Tax is also imposed at a rate of 1.5% of the taxpayer's net operating income. The Bill provides that tax paid at the rate of 1.5% of net operating income can be deducted against tax paid on net income at the rate of 3.5% or 5% in current and subsequent taxation years. A taxpayer must pay tax separately in respect of each LNG facility at which liquefaction activities are carried out.

This Bill also does the following:

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

2  (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

3  (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

7  (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

8  (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

9  (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

10  (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

11  (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

12  (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

13  (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

16  (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

17  (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

19  (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

21  (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

22  (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

26  (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

27  (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

28  (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

30  (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

33  (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

34  (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

35  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

36  (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

37  (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

40  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

41  (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   C 

D

(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

42  (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

43  (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

46  (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)

2
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

50  (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

51  (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
 x  fuel and
losses adjustment
 x  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

52  (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

54  (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

56  (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

57  (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

60  (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

61  (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

63  (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

64  (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

65  (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

66  (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

67  (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

70 (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

74  (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 purposes of this Act, does not apply in relation to an acquisition of natural gas at an LNG facility inlet meter.

(3) In applying section 69 (4) of the federal Act for the purposes of this Act, that section is to be read as if the reference to "would have increased the corporation's income or reduced a loss of the corporation," were read as a reference to "would have increased the corporation's net operating income or net income or reduced the corporation's net operating loss,".

Application of section 76 of federal Act —
security in satisfaction of income debt

75  (1) In applying section 76 (1) of the federal Act for the purposes of this Act, that section is to be read as if the reference in both places to "included in computing the person's income" were read as a reference to "taken into account in computing the person's net income, net operating income or net operating loss".

(2) In applying section 76 (3) of the federal Act for the purposes of this Act, that section is to be read as if the reference to "included in computing income" were read as a reference to "taken into account in computing net income, net operating income or net operating loss".

(3) Section 76 (4) and (5) of the federal Act does not apply for the purposes of this Act.

Application of section 78 of federal Act —
unpaid amounts

76  (1) In applying section 78 (1) (a) and (2) of the federal Act for the purposes of this Act, that section is to be read as if the reference to "income" were read as a reference to "net operating income or net operating loss".

(2) Section 78 (1) (b) and (3) of the federal Act does not apply for the purposes of this Act.

Division 2 — Transfer Pricing

Interpretation for this Division

77  (1) In this Division:

"arm's length allocation", in relation to a transaction, means an allocation of profit or loss that would have occurred between the participants in the transaction if the participants had been dealing at arm's length with each other;

"arm's length transfer price", in relation to a transaction, means an amount that would have been a transfer price in respect of the transaction if the participants in the transaction had been dealing at arm's length with each other;

"documentation-due date",

(a) in relation to a taxation year of a taxpayer, means the prescribed documentation-due date for the taxation year of the taxpayer, and

(b) in relation to a fiscal period of a partnership, means the prescribed documentation-due date for the fiscal period of the partnership;

"gross revenue", in relation to a taxpayer for a taxation year in respect of an LNG source, means the total of all amounts received or receivable by the taxpayer in the taxation year from the LNG source other than amounts received or receivable as or on account of capital;

"notionally acquired" has the same meaning as in section 47;

"qualifying cost contribution arrangement" means an arrangement under which reasonable efforts are made by the participants in the arrangement to establish a basis for contributing to, and to contribute on that basis to, the cost of producing, developing or acquiring any property, or acquiring or performing any services, in proportion to the benefits that each participant is reasonably expected to derive from the property or services as a result of the arrangement;

"tax benefit" means

(a) a reduction, avoidance or deferral of tax, or of another amount, payable under this Act, or

(b) an increase in a refund of tax, or of another amount, under this Act;

"transaction" includes an arrangement or event;

"transfer price", in relation to a transaction, means an amount paid or payable or an amount received or receivable, as the case may be, by a participant in the transaction as

(a) a price, rental, royalty, premium or other payment for, or for the use, production or reproduction of, property as part of the transaction, or

(b) consideration for services, including services provided as an employee and the insurance or reinsurance of risks, as part of the transaction;

"transfer pricing adjustment" means an adjustment made under section 79 [transfer pricing adjustment];

"transfer pricing capital adjustment", in relation to a taxpayer for a taxation year, means the total of the following:

(a) all amounts each of which is the amount, if any, by which an amount to be included in computing the balance of the taxpayer's capital investment account at the end of the taxation year is reduced in the taxation year because of a transfer pricing adjustment;

(b) all amounts each of which is the amount, if any, by which an amount to be deducted in computing the balance of the taxpayer's capital investment account at the end of the taxation year is increased in the taxation year because of a transfer pricing adjustment;

"transfer pricing capital setoff adjustment", in relation to a taxpayer for a taxation year, means the amount, if any, that would be the taxpayer's transfer pricing capital adjustment for the taxation year if,

(a) in paragraph (a) of the definition of "transfer pricing capital adjustment", the reference to "reduced" were read as a reference to "increased", and

(b) in paragraph (b) of the definition of "transfer pricing capital adjustment", the reference to "increased" were read as a reference to "reduced";

"transfer pricing income adjustment", in relation to a taxpayer for a taxation year, means the total of all amounts each of which is the amount, if any, by which a transfer pricing adjustment would result in either an increase in the taxpayer's net operating income for the taxation year or a decrease in the taxpayer's net operating loss for the taxation year if that transfer pricing adjustment were the only transfer pricing adjustment made under section 79;

"transfer pricing income setoff adjustment", in relation to a taxpayer for a taxation year, means the total of all amounts each of which is the amount, if any, by which a transfer pricing adjustment would result in either a decrease in the taxpayer's net operating income for the taxation year or an increase in the taxpayer's net operating loss for the taxation year if that transfer pricing adjustment were the only transfer pricing adjustment made under section 79.

(2) For the purposes of this Division, if a person is a member of a partnership that is a member of another partnership,

(a) the person is deemed to be a member of the other partnership,

(b) the person's share of the income or loss of the other partnership from an LNG source is deemed to be equal to the amount of that income or loss to which the person is directly or indirectly entitled, and

(c) the person's share of the balance of the capital investment account of the other partnership is deemed to be equal to the amount of that balance to which the person is directly or indirectly entitled.

Taxpayer's self-dealings

78  (1) Subject to subsection (2), this section applies in relation to a dealing between

(a) an activity of a taxpayer that is a part of a business or property of the taxpayer, or that is another source described in Division 3 [Other Sources of Income] of Part 3 of the taxpayer, that is in respect of an LNG source, and

(b) an activity of the taxpayer that is not in respect of the LNG source referred to in paragraph (a), whether or not the other activity is in respect of an LNG source,

and for which there would be a transfer price if the dealing were a transaction between participants.

(2) This section does not apply in relation to a dealing to which section 28 (3) to (5) [valuation of inventory] or 62 [rules relating to change in or multiple use of property] applies.

(3) If this section applies in relation to a dealing described in subsection (1), for the purposes of this Act,

(a) the taxpayer is, in relation to the activity of the taxpayer referred to in subsection (1) (a) and to the activity of the taxpayer referred to in subsection (1) (b), deemed to be separate persons that do not deal with each other at arm's length,

(b) the dealing is deemed to be a transaction with the separate persons referred to in paragraph (a) of this subsection as participants in the transaction, and

(c) the terms and conditions made or imposed in respect of the dealing are deemed to be the terms and conditions made or imposed, in respect of the transaction deemed under paragraph (b), between the participants in that transaction.

Transfer pricing adjustment

79  (1) Subject to subsection (2), this section applies in respect of a transaction or a series of transactions

(a) if

(i) a taxpayer or partnership, and

(ii) either

(A) a person with whom the taxpayer or partnership, or a member of the partnership, does not deal at arm's length, or

(B) a partnership of which the person referred to in clause (A) is a member

are participants in the transaction or the series of transactions, and

(b) if

(i) the terms or conditions made or imposed, in respect of the transaction or series, between any of the participants in the transaction or series differ from those that would have been made between persons dealing at arm's length, or

(ii) the transaction or series

(A) would not have been entered into between persons dealing at arm's length, and

(B) can reasonably be considered not to have been entered into primarily for bona fide purposes other than to obtain a tax benefit.

(2) This section does not apply to natural gas notionally acquired by the taxpayer at an LNG facility inlet meter, except in relation to the determination of an amount under section 53 [transportation cost for natural gas notionally acquired in month].

(3) In addition to subsection (1), this section applies to a transaction that is a deemed disposition of liquefied natural gas, natural gas liquids or natural gas under section 28 (5) [valuation of inventory], if the amount determined under that section by the taxpayer for the purposes of this Act differs from the arm's length transfer price in respect of the disposition.

(4) For the purposes of applying this section in respect of a transaction described in subsection (3), the taxpayer and the person referred to in section 28 (5) are deemed to be participants in the transaction.

(5) If this section applies in respect of a transaction or a series of transactions, any amounts that, but for this Division, would be determined for the purposes of this Act in respect of the taxpayer for a taxation year, or in respect of the partnership for a fiscal period, must be adjusted to the quantum or nature of the amounts that would have been determined if,

(a) in a case in which only subsection (1) (b) (i) applies, the terms and conditions made or imposed, in respect of the transaction or series, between the participants in the transaction or series had been those that would have been made between persons dealing at arm's length,

(b) in a case in which subsection (1) (b) (ii) applies, the transaction or series entered into between the participants had been the transaction or series that would have been entered into between persons dealing at arm's length, under terms and conditions that would have been made between persons dealing at arm's length, or

(c) in a case in which only subsection (3) applies, the transaction had been the transaction that would have been entered into between persons dealing at arm's length, under terms and conditions that would have been made between persons dealing at arm's length.

Penalty

80  (1) In this section, "applicable percentage",

(a) in relation to a taxation year that begins on or after January 1, 2017 and before January 1, 2037, means 3.5%, and

(b) in relation to a taxation year that begins on or after January 1, 2037, means 5%.

(2) A taxpayer is liable to a penalty for a taxation year equal to the applicable percentage of the amount determined under paragraph (a) in respect of the taxpayer for the taxation year, if

(a) the amount, if any, by which the total of the taxpayer's transfer pricing capital adjustment for the taxation year and the taxpayer's transfer pricing income adjustment for the taxation year exceeds the total of

(i) all amounts each of which is the portion of the taxpayer's transfer pricing capital adjustment or transfer pricing income adjustment for the taxation year that can reasonably be considered to relate to a particular transaction, if

(A) the transaction is a qualifying cost contribution arrangement in which the taxpayer or a partnership of which the taxpayer is a member is a participant, or

(B) in any other case, the taxpayer or a partnership of which the taxpayer is a member made reasonable efforts to determine arm's length transfer prices or arm's length allocations in respect of the transaction, and to use those prices or allocations for the purposes of this Act, and

(ii) all amounts each of which is the portion of the taxpayer's transfer pricing capital setoff adjustment or transfer pricing income setoff adjustment for the taxation year that can reasonably be considered to relate to a particular transaction, if

(A) the transaction is a qualifying cost contribution arrangement in which the taxpayer or a partnership of which the taxpayer is a member is a participant, or

(B) in any other case, the taxpayer or a partnership of which the taxpayer is a member made reasonable efforts to determine arm's length transfer prices or arm's length allocations in respect of the transaction, and to use those prices or allocations for the purposes of this Act,

is greater than

(b) the lesser of

(i) 10% of the amount that would be the taxpayer's gross revenue for the taxation year from the LNG source if this Act were read without reference to the following provisions:

(A) section 79 [transfer pricing adjustment];

(B) section 69 (1) and (1.2) [inadequate considerations] of the federal Act, as that section applies for the purposes of this Act, and

(ii) $5 000 000.

(3) Subsection (2) does not apply to a taxpayer all of whose net income and net operating income for the taxation year is exempt from tax under this Act.

(4) For the purposes of subsection (2) (b) (i), if a taxpayer is a member of a partnership in a taxation year, the taxpayer's gross revenue for the taxation year from the LNG source, as a member of the partnership, is deemed to be that proportion of the amount that would be the partnership's gross revenue from the LNG source, if the partnership were a taxpayer, to the extent that amount does not include amounts received or receivable from other partnerships of which the taxpayer is a member in the taxation year, for a fiscal period of the partnership that ends in the taxation year, that the taxpayer's share of the income or loss of the partnership from the LNG source for the fiscal period is of the income or loss of the partnership from the LNG source for the fiscal period.

(5) For the purpose of determining a taxpayer's share of the partnership's income or loss from the LNG source for the purpose of subsection (4), if the income and loss of the partnership from the LNG source are zero for the fiscal period, the income of the partnership from the LNG source for the fiscal period is deemed to be $1 000 000.

(6) For the purposes of determining a taxpayer's gross revenue under subsections (2) (b) (i) and (4), a transaction or series of transactions is deemed not to have occurred, if one of the purposes of the transaction or series was to increase the taxpayer's gross revenue for the purpose of subsection (2).

Contemporaneous documentation
supporting reasonable efforts

81  For the purposes of section 80 (2) and the definition of "qualifying cost contribution arrangement" in section 77 (1), a taxpayer or a partnership is deemed not to have made reasonable efforts to determine and use arm's length transfer prices or arm's length allocations in respect of a transaction or not to have participated in a transaction that is a qualifying cost contribution arrangement, unless the taxpayer or the partnership does all of the following:

(a) makes or obtains, on or before the taxpayer's documentation-due date for the taxation year in which the transaction is entered into, or the partnership's documentation-due date for the fiscal period in which the transaction is entered into, records or documents that provide a description of all of the following that is complete and accurate in all material respects:

(i) the property or services to which the transaction relates;

(ii) the terms and conditions of the transaction and their relationship, if any, to the terms and conditions of each other transaction entered into between the participants in the transaction;

(iii) the identity of the participants in the transaction and the participants' relationship to each other at the time the transaction was entered into;

(iv) the functions performed, the property used or contributed and the risks assumed, in respect of the transaction, by the participants in the transaction;

(v) the data and methods considered and the analysis performed to determine the transfer prices or the allocations of profits or losses or contributions to costs in respect of the transaction;

(vi) the assumptions, strategies and policies, if any, that influenced the determination of the transfer prices or the allocations of profits or losses or contributions to costs in respect of the transaction;

(b) for each subsequent taxation year or fiscal period, if any, in which the transaction continues, makes or obtains, on or before the taxpayer's documentation-due date for that taxation year, or the partnership's documentation-due date for that fiscal period, records or documents that completely and accurately describe each material change in the taxation year or fiscal period to the matters referred to in any of paragraph (a) (i) to (vi) in respect of the transaction;

(c) after service of a written request from the minister, provides the records or documents described in paragraphs (a) and (b) to the minister within the period specified in the written request.

Provisions not applicable if section 79 applies

82  (1) In this section, "relevant provisions" means section 68 [general limitation respecting expenses] and the following sections of the federal Act, as those sections apply for the purposes of this Act:

(a) section 68 [allocation of amounts in consideration for property or services];

(b) section 69 (1) and (1.2) [inadequate considerations].

(2) If section 79 [transfer pricing adjustment] would, if this Act were read without reference to the relevant provisions, apply to adjust an amount under this Act, the relevant provisions do not apply to determine the amount if section 79 is applied to adjust the amount.

Division 3 — Computations for First Taxation Year

Definitions for this Division

83  In this Division:

"qualifying expenditure", in relation to a taxpayer, means

(a) an expenditure that is incurred

(i) by the taxpayer before the taxpayer's first taxation year begins, and

(ii) for the purpose of gaining or producing income from an LNG source on or after the date on which the taxpayer's first taxation year begins,

other than an expenditure within a class of expenditures prescribed for the purposes of this paragraph, or

(b) an expenditure that

(i) is incurred by the taxpayer before the taxpayer's first taxation year begins, and

(ii) is within a class of expenditures prescribed for the purposes of this paragraph;

"qualifying property", in relation to a taxpayer, means property that is

(a) capital investment property, and

(b) owned by the taxpayer immediately before the taxpayer's first taxation year.

Amounts included in net operating loss account

84  (1) If a taxpayer wishes to elect to apply subsection (3) in respect of an LNG source for the taxpayer's first taxation year, the taxpayer must make the election by filing, with the tax return filed for the first taxation year in respect of the LNG source,

(a) an application to apply subsection (3) in the form, and containing the information, required by the minister, and

(b) other information and records required by the minister.

(2) A taxpayer is not entitled to elect to apply subsection (3) in respect of an LNG source for the taxpayer's first taxation year unless, within 18 months after the end of that taxation year, the taxpayer files the application, other information and records as required under subsection (1).

(3) If a taxpayer elects to apply this subsection in respect of an LNG source for the taxpayer's first taxation year, in computing the balance of the taxpayer's net operating loss account for that taxation year from the LNG source, the taxpayer is deemed to have a net operating loss for that taxation year from the LNG source equal to the total of all amounts each of which is a qualifying expenditure incurred by the taxpayer in respect of the LNG source, but only to the extent that the qualifying expenditure would have been deductible in computing the taxpayer's net operating income for that taxation year in respect of the LNG source if the qualifying expenditure had been incurred in that taxation year.

(4) Subsection (3) applies in addition to any other net operating loss the taxpayer may have for that taxation year from the LNG source.

(5) This section does not apply to a taxpayer that is a new corporation referred to in section 88 (a) [new corporation resulting from amalgamation].

Amounts included in capital investment account

85  (1) If a taxpayer wishes to elect to apply either subsection (3) or (6) in respect of an LNG source for the taxpayer's first taxation year, the taxpayer must make the election by filing, with the tax return filed for the first taxation year in respect of the LNG source,

(a) an application to apply subsection (3) or (6) in the form, and containing the information, required by the minister, and

(b) other information and records required by the minister.

(2) A taxpayer is not entitled to elect to apply either subsection (3) or (6) in respect of an LNG source for the taxpayer's first taxation year unless, within 18 months after the end of that taxation year, the taxpayer files the application, other information and records as required under subsection (1).

(3) If a taxpayer elects to apply this subsection in respect of an LNG source for the taxpayer's first taxation year, in respect of each qualifying property of the taxpayer, the taxpayer is, for the purposes of section 60 (1) (a) [amounts included in capital investment account], deemed to have acquired at the beginning of that first taxation year capital investment property with, subject to subsection (4) of this section, a capital cost to the taxpayer equal to the fair market value of the qualifying property at the beginning of that first taxation year.

(4) If a taxpayer elects to apply section 84 (3) in respect of an LNG source for the taxpayer's first taxation year, the capital cost otherwise established under subsection (3) of this section in respect of qualifying property is reduced by the amount, if any, that is a qualifying expenditure included in computing the total under section 84 (3).

(5) In subsection (6), "capital cost", in relation to qualifying 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 would have been deductible in computing the taxpayer's net operating income or net operating loss for the taxation year in which the qualifying property was acquired or a previous taxation year if the taxpayer had been required to compute that amount for that taxation year.

(6) If a taxpayer elects to apply this subsection in respect of an LNG source for the taxpayer's first taxation year, in respect of each qualifying property of the taxpayer, the taxpayer is, for the purposes of section 60 (1) (a) [amounts included in capital investment account], deemed to have acquired at the beginning of that first taxation year capital investment property with a capital cost to the taxpayer equal to the amount, if any, by which the amount that would otherwise be the capital cost to the taxpayer of the qualifying property exceeds the total of all amounts each of which is a financial incentive that the taxpayer received before that first taxation year in respect of or for the acquisition of the qualifying property.

(7) This section does not apply to a taxpayer that is a new corporation referred to in section 88 (a) [new corporation resulting from amalgamation].

Division 4 — Amalgamation of Corporations

Definitions for this Division

86  In this Division:

"amalgamation" means an amalgamation within the meaning of section 87 (1);

"last taxation year", in relation to a predecessor corporation, means the predecessor corporation's taxation year that ended immediately before the amalgamation;

"predecessor corporation" means a corporation that amalgamates with one or more corporations.

Application of this Division

87  (1) This Division applies in relation to an amalgamation of two or more corporations if all of the following requirements are met:

(a) the amalgamation was effected under

(i) Division 3 of Part 9 of the Business Corporations Act or similar provisions of another enactment of British Columbia,

(ii) sections 181 to 186 of the Canada Business Corporations Act or similar provisions of another enactment of Canada, or

(iii) similar provisions of an enactment of another province;

(b) two or more of the predecessor corporations are taxpayers in respect of an LNG source;

(c) all of the predecessor corporations are continued in the new corporation as a result of the amalgamation;

(d) the property, rights and interests of each predecessor corporation continue to be the property, rights and interests of the new corporation;

(e) the new corporation continues to be liable for the obligations of each predecessor corporation.

(2) If one or more predecessor corporations are taxpayers in respect of more than one LNG source, this Division applies as if there were separate amalgamations in respect of each LNG source.

Deemed new corporation and taxation years

88  For the purposes of this Act,

(a) the corporate entity formed as a result of the amalgamation is deemed to be a new corporation,

(b) the first taxation year of the new corporation is deemed to have commenced at the time of the amalgamation, and

(c) a taxation year of a predecessor corporation that would otherwise have ended after the amalgamation is deemed to have ended immediately before the amalgamation.

New corporation's tax pool balance

89  For the purpose of computing the balance of a new corporation's tax pool for a taxation year for an LNG source, the new corporation must

(a) include all amounts each of which is an amount payable by a predecessor corporation under section 21 [tax on net operating income] in respect of the LNG source for a taxation year of the predecessor corporation, and

(b) deduct all amounts each of which is an amount deducted by a predecessor corporation under section 19 (1) (a), (b) or (c) [deduction from tax on net income] in respect of the LNG source for a taxation year of the predecessor corporation.

New corporation a continuation of
predecessor corporations

90  (1) For the purposes of the following sections, the new corporation is deemed to be the same corporation as, and a continuation of, each predecessor corporation:

section 31 (c) [other income inclusions — bad debts];

section 31 (e) [other income inclusions — financial incentives];

section 38 [deduction of repaid financial incentives].

(2) For the purposes of the following sections of the federal Act, as those sections apply for the purposes of this Act, the new corporation is deemed to be the same corporation as, and a continuation of, each predecessor corporation:

section 12 (1) (n.1) [employee benefit plan];

section 12 (1) (n.2) [forfeited salary deferral amounts];

section 12 (1) (n.3) [retirement compensation arrangement];

section 12.4 [bad debt inclusion];

section 18 (9) [limitation respecting prepaid expenses];

section 20 (1) (m) [reserve in respect of certain goods and services];

section 20 (1) (m.2) [repayment of amount previously included in income];

section 20 (1) (r) [employer's contributions under retirement compensation arrangement];

section 20 (1) (s) [employer's contributions under employee life and health trust];

section 20 (1) (oo) [salary deferral arrangement];

section 20 (1) (pp) [salary deferral arrangement];

section 20 (24) [amounts paid for undertaking future obligations];

section 32.1 [employee benefit plan deductions];

section 34.2 [corporate partners — income adjustment].

Valuation of inventory

91  For the purpose of computing the new corporation's income from a business for the new corporation's first taxation year, if the property described in the inventory, if any, of the new corporation at the beginning of its first taxation year includes property that was described in the inventory of a predecessor corporation at the end of the predecessor corporation's last taxation year, the property so included is deemed to have been acquired by the new corporation at the beginning of its first taxation year for an amount determined in accordance with section 28 [valuation of inventory] as the value of that property for the purpose of computing the income of the predecessor corporation for its last taxation year.

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

92  In computing a new corporation's income for a taxation year from a business or property, the following rules apply:

(a) the new corporation must include an amount received or receivable by the new corporation in that taxation year that would, if the amount had been received or receivable by the predecessor corporation in its last taxation year, have been included in computing the income of the predecessor corporation for its last taxation year;

(b) the new corporation may deduct an amount paid or payable by the corporation in that taxation year that would, if the amount had been paid or payable by the predecessor corporation in its last taxation year, have been deductible in computing the income of the predecessor corporation for its last taxation year;

(c) any amount that has been deducted as a reserve in computing the income of a predecessor corporation for its last taxation year is deemed to have been deducted as a reserve in computing the income of the new corporation for a taxation year immediately preceding its first taxation year;

(d) any amount that has been deducted under section 20 (1) (p) [bad debts] of the federal Act, as that section applies for the purposes of this Act, in computing the income of a predecessor corporation for its last taxation year or a previous taxation year is deemed to have been deducted under that section in computing the income of the new corporation for a taxation year immediately preceding its first taxation year;

(e) for the purpose of computing a deduction from the income of the new corporation for a taxation year under section 20 (1) (l) [doubtful debts] or (p) [bad debts] of the federal Act, as that section applies for the purposes of this Act, a debt owing to a predecessor corporation

(i) that was included in computing the income of the predecessor corporation for its last taxation year or a previous taxation year, and

(ii) that, by reason of the amalgamation, has been acquired by the new corporation

is deemed to be a debt owing to the new corporation that was included in computing its income for a previous taxation year;

(f) for the purpose of computing a deduction from the income of the new corporation for a taxation year under section 20 (1) (n) [reserve for unpaid amounts] of the federal Act, as that section applies for the purposes of this Act, an amount included in computing the income of a predecessor corporation from a business for its last taxation year or a previous taxation year in respect of property sold in the course of the business is deemed to have been included in computing the income of the new corporation from the business for a previous taxation year in respect of that property;

(g) despite any other provision of this Act, if a property was disposed of by a predecessor corporation, the new corporation is, in computing the amount of any deduction under section 20 (1) (n) [reserve for unpaid amount] of the federal Act, as that section applies for the purposes of this Act, as a reserve in respect of the property sold in the course of business, deemed to be the same corporation as, and a continuation of, the predecessor corporation;

(h) for the purposes of section 20 (1) (ii) [inventory adjustment] of the federal Act, as that section applies for the purposes of this Act, an amount required by section 12 (1) (r) [inventory adjustment] of the federal Act, as it applies for the purposes of this Act, to be included in computing the income of a predecessor corporation for its last taxation year is deemed to be an amount required by section 12 (1) (r) of the federal Act to be included in computing the income of the new corporation for a taxation year immediately preceding its first taxation year.

New corporation's net operating loss account balance

93  For the purpose of computing the balance of a new corporation's net operating loss account for a taxation year for an LNG source, the new corporation must

(a) include all amounts each of which is a net operating loss of a predecessor corporation from the LNG source for a taxation year of the predecessor corporation, and

(b) deduct all amounts each of which is an amount deducted by a predecessor corporation under section 54 (3) (a) [net operating loss account deduction] in respect of the LNG source for a taxation year of the predecessor corporation.

Rule relating to new corporation's
capital investment account balance

94  For the purpose of computing the balance of the new corporation's capital investment account for an LNG source as at a particular time, the new corporation is deemed to be the same corporation as, and a continuation of, each predecessor corporation.

Rule relating to closure tax credit

95  For the purpose of claiming a tax credit under Part 8 for the new corporation's last taxation year in respect of an LNG source, the new corporation is deemed to be the same corporation as, and a continuation of, each predecessor corporation.

Notice to minister

96  If two or more corporations have amalgamated, the new corporation must file with the minister, on or before the prescribed date, a notice of amalgamation in the form, and containing the information, required by the minister.

Part 6 — Partnerships and Their Members

Division 1 — General Rules

Reference to person or taxpayer
who is member of partnership

97  In this Part, a reference to a person or taxpayer who is a member of a particular partnership includes a reference to another partnership that is a member of the particular partnership.

Application of this Part

98  This Part applies to a taxpayer who is a member of a partnership that engages in, or has income derived from, liquefaction activities in respect of an LNG source, for the purpose of computing the following in respect of the LNG source:

(a) the taxpayer's income or loss for a taxation year from a business or property;

(b) the taxpayer's income for a taxation year from another source described in Division 3 [Other Sources of Income] of Part 3;

(c) the taxpayer's deductions for a taxation year permitted under Division 4 [Deductions in Computing Net Operating Income] of Part 3;

(d) the balance of the taxpayer's capital investment account for the LNG source as at a particular time;

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

(f) for the purposes of Part 8 [Closure Tax Credit], the taxpayer's eligible expenditures for the taxpayer's last taxation year in respect of the LNG source.

General rules

99  (1) The amounts referred to in section 98 in relation to a taxpayer who is a member of a partnership are to be computed under this Act as if

(a) the partnership were a separate person,

(b) the taxation year of the partnership were its fiscal period, and

(c) each partnership activity, including the ownership of property, were carried on by the partnership as a separate person.

(2) The provisions of this Part are to be read and construed as if each of the assumptions in subsection (1) (a) to (c) and section 107 (1) (a) were made.

Fiscal period of terminated partnership

100  If, at any time in a fiscal period of a partnership, the partnership would, if this Act were read without reference to section 106 [distribution of partnership property], have ceased to exist, the fiscal period is deemed to have ended immediately before that time.

Former member deemed to be member of partnership

101  If, at any time in a fiscal period of a partnership, a taxpayer ceases to be a member of the partnership, the taxpayer is, for the purposes of the following provisions, deemed to be a member of the partnership at the end of the fiscal period:

(a) section 98 [application of this Part];

(b) section 99 (1) [general rules];

(c) section 103 [agreement to share amounts];

(d) section 107 [income and loss of partnership];

(e) section 110 [investment allowance — partnership's adjusted capital investment account balance];

(f) section 113 [deemed acquisition or disposition of capital investment property — partnership's capital investment account];

(g) section 115 [eligible partnership expenditure];

(h) section 34.1 [additional business income] of the federal Act, as that section applies for the purposes of this Act;

(i) section 249.1 (1) (b) [definition of "fiscal period"] of the federal Act, as that section applies for the purposes of this Act.

Election made for partnership members

102  (1) In this section:

"relevant provision" means any of the following:

(a) section 65 (2) (c) [amount in respect of disposition of property that is replaced];

(b) section 22 [sale of accounts receivable] of the federal Act, as that section applies for the purposes of this Act;

"relevant purpose", in relation to a taxpayer who was a member of a partnership at any time in a fiscal period of the partnership, means any purpose relevant to the computation of

(a) the taxpayer's share of any income or loss of the partnership for the fiscal period from a business or property, or

(b) the taxpayer's share of the balance of the partnership's capital investment account at the end of the fiscal period.

(2) If a taxpayer who was a member of a partnership at any time in a fiscal period of the partnership has, for a relevant purpose, made an election under a relevant provision that, if this Act were read without reference to this subsection, would be a valid election, the following rules apply:

(a) the election is not valid unless

(i) the election was made on behalf of the taxpayer and each other person who was a member of the partnership during the fiscal period, and

(ii) the taxpayer had authority to act for the partnership;

(b) unless the election is invalid because of paragraph (a), each other person who was a member of the partnership during the fiscal period is deemed to have made the election;

(c) despite paragraph (a), an election deemed by paragraph (b) to have been made by a person is deemed to be a valid election made by that person.

Agreement to share amounts

103 (1) Subsection (2) applies to the members of a partnership if

(a) the members of the partnership have agreed to share, in relation to a fiscal period of the partnership, any of the following:

(i) any income or loss of the partnership for the fiscal period from a business or property;

(ii) any income of the partnership for the fiscal period from another source described in Division 3 [Other Sources of Income] of Part 3;

(iii) any deductions permitted to the partnership for the fiscal period under Division 4 [Deductions in Computing Net Operating Income] of Part 3;

(iv) the balance of the partnership's capital investment account at the end of the fiscal period;

(v) the balance of the partnership's adjusted capital investment account at the end of the fiscal period, computed for the purposes of Division 5 [Investment Allowance] of Part 3;

(vi) the partnership's total eligible closure expenditures for the fiscal period, computed for the purposes of Division 4 [Member's Closure Tax Credit] of this Part, and

(b) the principal reason for the agreement may reasonably be considered to be the reduction or postponement of the tax that might otherwise have been or become payable under this Act.

(2) If this subsection applies to the members of a partnership, the share of each member of the partnership in the income, loss, deduction, balance or expenditure is the amount that is reasonable having regard to all of the circumstances.

(3) Subsection (4) applies to the members of a partnership who are not dealing with each other at arm's length if, in relation to a fiscal period of the partnership,

(a) two or more members of the partnership who are not dealing with each other at arm's length agree to share any of the following:

(i) any income or loss of the partnership for the fiscal period from a business or property;

(ii) any income of the partnership for the fiscal period from another source described in Division 3 [Other Sources of Income] of Part 3;

(iii) any deductions permitted to the partnership for the fiscal period under Division 4 [Deductions in Computing Net Operating Income] of Part 3;

(iv) the balance of the partnership's capital investment account at the end of the fiscal period;

(v) the balance of the partnership's adjusted capital investment account at the end of the fiscal period, computed for the purposes of Division 5 [Investment Allowance] of Part 3;

(vi) the partnership's total eligible closure expenditures for the fiscal period, computed for the purposes of Division 4 [Member's Closure Tax Credit] of this Part, and

(b) the share of any such member of that income, loss, deduction, balance or expenditure is not reasonable in the circumstances having regard to

(i) the capital invested in or work performed for the partnership by the members of the partnership, or

(ii) any other relevant factors.

(4) If this subsection applies to the members of a partnership who are not dealing with each other at arm's length, the share of any such member of that income, loss, deduction, balance or expenditure is, despite any agreement, deemed to be the amount that is reasonable in the circumstances.

Contribution of property to partnership

104  (1) If at any time a partnership has acquired property from a person who was, immediately after that time, a member of the partnership,

(a) the partnership is deemed to have acquired the property for an amount equal to its fair market value at that time, and

(b) the person is deemed to have disposed of the property for proceeds equal to that fair market value.

(2) Subsection (1) does not apply in relation to an acquisition of liquefied natural gas, natural gas liquids or natural gas.

Disposition of partnership property

105  (1) If at any time a partnership has disposed of property to a person who was, immediately before that time, a member of the partnership,

(a) the partnership is deemed to have disposed of the property for proceeds equal to the fair market value of that property at that time, and

(b) the person is deemed to have acquired the property for an amount equal to that fair market value.

(2) Subsection (1) does not apply in relation to a disposition of liquefied natural gas, natural gas liquids or natural gas.

Distribution of partnership property

106  For the purposes of this Act, if, but for this section, at any time a partnership would be regarded as having ceased to exist, the following rules apply:

(a) until such time as all the partnership property and any property substituted for the partnership property have been distributed to the persons entitled by law to receive it, the partnership is deemed not to have ceased to exist, and each person who was a partner is deemed not to have ceased to be a partner;

(b) the right of each person who was a partner to share in that property is deemed to be an interest in the partnership.

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

Income and loss of partnership

107  (1) If a taxpayer is a member of a partnership that engages in, or has income derived from, liquefaction activities in respect of an LNG source in a fiscal period of the partnership, a computation must be made of the following amounts for the fiscal period:

(a) each income and loss of the partnership from a business or property, computed as if sections 34.1 [additional business income] and 34.2 [corporate partners — income adjustment] of the federal Act did not apply for the purposes of this Act;

(b) each income of the partnership from another source described in Division 3 [Other Sources of Income] of Part 3;

(c) each deduction permitted to the partnership under Division 4 [Deductions in Computing Net Operating Income] of Part 3.

(2) If a taxpayer is a member of a partnership that has income for a fiscal period of the partnership from a business or property, that amount of income is, for the purposes of section 31 (d) [other income inclusions — partnership income] and to the extent of the taxpayer's share of that amount, income of the taxpayer from that business or property for the taxation year of the taxpayer in which the partnership's fiscal period ends.

(3) If a taxpayer is a member of a partnership that has a loss for a fiscal period of the partnership from a business or property, the amount of that loss is, for the purposes of section 31 (d), as that section applies in accordance with section 26 (2) [loss for a taxation year], and to the extent of the taxpayer's share of that amount, a loss of the taxpayer from that business or property for the taxation year of the taxpayer in which the partnership's fiscal period ends.

(4) If a taxpayer is a member of a partnership that has income for a fiscal period of the partnership from another source described in Division 3 [Other Sources of Income] of Part 3, that amount of income is, for the purposes of section 44 (c) [other sources of income] and to the extent of the taxpayer's share of that amount, income of the taxpayer from that source for the taxation year of the taxpayer in which the partnership's fiscal period ends.

(5) If a taxpayer is a member of a partnership that may deduct an amount under Division 4 [Deductions in Computing Net Operating Income] of Part 3 for a fiscal period of the partnership, that amount is, for the purposes of section 45 (b) [deductions] and to the extent of the taxpayer's share of that amount, a deduction of the taxpayer for the taxation year of the taxpayer in which the partnership's fiscal period ends.

Deemed receipt of financial incentive by partnership

108  For the purposes of sections 31 (e) [other income inclusions — financial incentives] and 38 [deduction of repaid financial incentives], if at a particular time a taxpayer who is a member of a partnership has received a financial incentive in respect of the activities of the partnership, the cost of property of the partnership or an expense of the partnership, the amount is, subject to section 112 [receipt of financial incentive — capital investment property], deemed to have been received at that time by the partnership as a financial incentive.

Allocation of share of income or loss to former partner

109  (1) In this section, "relevant provisions" means

(a) the following sections:

(i) section 99 [general rules];

(ii) section 103 [agreement to share amounts];

(iii) section 107 [income and loss of partnership], and

(b) the following sections of the federal Act, as those sections apply for the purposes of this Act:

(i) section 34.1 [additional business income];

(ii) section 34.2 [corporate partners — income adjustment];

(iii) section 249.1 [definition of "fiscal period"].

(2) Subsection (3) applies to a taxpayer if

(a) the members of a partnership have entered into an agreement to allocate to the taxpayer a share of the income or loss of the partnership from a business or property, or a share of the income of the partnership from another source described in Division 3 [Other Sources of Income] of Part 3, and

(b) the taxpayer at any time ceased to be a member of

(i) the partnership, or

(ii) a partnership that at any time has ceased to exist or would, but for section 106 [distribution of partnership property], have ceased to exist, and either of the following have agreed to make that allocation:

(A) the members of that partnership;

(B) the members of another partnership in which, immediately after that time, any of the members referred to in clause (A) of this subparagraph became members.

(3) For the purposes of the relevant provisions, a taxpayer to whom this subsection applies is deemed to be a member of the partnership referred to in subsection (2) (a), and the taxpayer,

(a) in computing the taxpayer's income from the business or property for a taxation year in which a particular fiscal period of the partnership ends, must, despite any other provision of this Act, include under section 31 (d) [other income inclusions — partnership income] all amounts each of which is an amount equal to the share of the income of the partnership from the business or property allocated to the taxpayer from the partnership in respect of the particular fiscal period,

(b) in computing the taxpayer's loss from the business or property for a taxation year in which a particular fiscal period of the partnership ends, must, despite any other provision of this Act, include under section 31 (d), as that section applies in accordance with section 26 (2) [loss for a taxation year], all amounts each of which is an amount equal to the share of the loss of the partnership from the business or property allocated to the taxpayer from the partnership in respect of the particular fiscal period, and

(c) in computing the taxpayer's net operating income for a taxation year in which a particular fiscal period of the partnership ends, must, despite any other provision of this Act, include under section 44 (c) [other sources of income] all amounts each of which is an amount equal to the share of the income of the partnership from another source described in Division 3 [Other Sources of Income] of Part 3 allocated to the taxpayer from the partnership in respect of the particular fiscal period.

(4) If, in a taxation year, a taxpayer who has a right to a share of the income or loss of a partnership under an agreement referred to in subsection (2) disposes of that right,

(a) the taxpayer must include under section 44 (c) the proceeds of disposition in computing the taxpayer's net operating income for the taxation year, and

(b) for greater certainty, the cost to the taxpayer of each property received by the taxpayer as consideration for the disposition is the fair market value of the property at the time of the disposition.

(5) If an amount must be included under subsection (3) or (4) in computing a taxpayer's net operating income for a taxation year, the taxpayer may reduce the amount otherwise determined for the purposes of subsection (3) or (4) by the lesser of

(a) the amount otherwise to be included in computing the taxpayer's net operating income for the taxation year, and

(b) the amount, if any, by which the cost to the taxpayer of the right to a share of the income or loss of a partnership under an agreement referred to in subsection (2) exceeds the total of all amounts in respect of that right that were a reduction under this subsection in computing the taxpayer's net operating income for previous taxation years.

(6) For the purposes of this Act, a right to a share of the income or loss of a partnership under an agreement referred to in subsection (2) is deemed not to be capital investment property.

Investment allowance — partnership's
adjusted capital investment account balance

110  If a taxpayer is a member of a partnership that engages in, or has income derived from, liquefaction activities in respect of an LNG source in a fiscal period of the partnership that ends in a taxation year of the taxpayer, in computing, for the purposes of section 46 [investment allowance], the balance of the taxpayer's adjusted capital investment account for the LNG source at the end of the taxpayer's taxation year, a computation must be made of the balance of the partnership's adjusted capital investment account for the LNG source at the end of the fiscal period of the partnership, which is the balance of the partnership's capital investment account for the LNG source at the end of that fiscal period of the partnership computed as if intangible personal property were excluded from the meaning of capital investment property.

Division 3 — Computation of Member's Net Income

Partnership's capital investment account

111  (1) If a taxpayer is a member of a partnership that engages in, or has income derived from, liquefaction activities in respect of an LNG source, a computation must be made of the balance of the partnership's capital investment account for the LNG source at the end of each fiscal period of the partnership.

(2) Subject to this Division, the balance of a partnership's capital investment account for an LNG source at the end of a fiscal period of the partnership is determined in accordance with Division 3 [Capital Investment Account] of Part 4, except that

(a) subject to paragraph (b), the opening balance in the account at the beginning of the fiscal period of the partnership is zero, and

(b) the total of all amounts each of which is a reduction under section 66 (2) (a) or (b) [proceeds of disposition if all or portion payable in future] that was applied in computing the balance of the partnership's capital investment account for the LNG source at the end of the preceding fiscal period of the partnership is to be included in computing the balance of the partnership's capital investment account for the LNG source at the end of that fiscal period of the partnership.

(3) In applying section 60 (1) [amounts included in capital investment account] for the purpose of computing the balance of a partnership's capital investment account for an LNG source at the end of a fiscal period of the partnership, the following rules apply:

(a) paragraphs (a), (c), (d) and (e) (iii) of that section are to be read as if the reference to "before that time" were read as a reference to "in the taxation year";

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

(c) paragraph (c) (i) of that section is to be read as if the reference to "paragraph (a)" were read as a reference to "paragraph (a) for the taxation year or a previous taxation year";

(d) paragraphs (c) (ii) and (e) (ii) of that section are to be read as if the reference to "section 61 (1) (a)" were read as a reference to "section 61 (1) (a) for the taxation year or a previous taxation year".

(4) In applying section 61 (1) [amounts deducted from capital investment account] for the purpose of computing the balance of a partnership's capital investment account for an LNG source at the end of a fiscal period of the partnership, the following rules apply:

(a) paragraphs (a), (c), (d) and (e) of that section are to be read as if the reference to "before that time" were read as a reference to "in the taxation year";

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

(c) paragraph (c) of that section is to be read as if the reference to "an amount is included under section 60 (1) (a)" were read as a reference to "an amount is included under section 60 (1) (a) for the taxation year or a previous taxation year";

(d) paragraph (d) of that section is to be read as if the reference to "section 60 (1) (d)" were read as a reference to "section 60 (1) (d) for the taxation year or a previous taxation year";

(e) paragraph (e) of that section is to be read as if the reference to "section 60 (1) (e)" were read as a reference to "section 60 (1) (e) for the taxation year or a previous taxation year".

Receipt of financial incentive — capital investment property

112 For the purposes of sections 60 (1) (c) [amounts included in capital investment account] and 61 (1) (c) [amounts deducted from capital investment account], if at any time a taxpayer who is a member of a partnership has received or is entitled to receive a financial incentive that may reasonably be considered to be in respect of, or for the acquisition of, capital investment property of the partnership, the amount of the financial incentive is deemed to have been received at that time by the partnership as a financial incentive for the acquisition of capital investment property.

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

113  (1) For the purposes of section 60 (1) (a) [amounts included in capital investment account], if the balance of a partnership's capital investment account for an LNG source at the end of a fiscal period of the partnership is greater than zero and a taxpayer is a member of the partnership at the end of the fiscal period of the partnership, the taxpayer is deemed to have acquired capital investment property at the end of the fiscal period of the partnership with a capital cost to the taxpayer of an amount equal to the taxpayer's share of the balance of the partnership's capital investment account for the LNG source at the end of the fiscal period of the partnership.

(2) For the purposes of section 61 (1) (a) [amounts deducted from capital investment account], if the balance of a partnership's capital investment account for an LNG source at the end of a fiscal period of the partnership is less than zero and a taxpayer is a member of the partnership at the end of the fiscal period of the partnership, the taxpayer is deemed to have disposed of capital investment property at the end of the fiscal period of the partnership for proceeds of disposition to the taxpayer of an amount equal to the taxpayer's share of the balance of the partnership's capital investment account for the LNG source at the end of the fiscal period of the partnership.

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

114  (1) For the purposes of section 60 (1) (a) [amounts included in capital investment account], if at any time a taxpayer acquires an interest in a partnership, the taxpayer is deemed to have acquired capital investment property at that time with a capital cost to the taxpayer of an amount equal to the taxpayer's share of the fair market value of the partnership's capital investment property at that time.

(2) For the purposes of section 61 (1) (a) [amounts deducted from capital investment account], if at any time a taxpayer disposes of an interest in a partnership, the taxpayer is deemed to have disposed of capital investment property at that time for proceeds of disposition to the taxpayer of an amount equal to the taxpayer's share of the fair market value of the partnership's capital investment property at that time.

Division 4 — Member's Closure Tax Credit

Eligible partnership expenditure

115  (1) In this section:

"eligible closure expenditure" has the same meaning as in section 121, except that the part after paragraph (c) of the definition in that section is to be read as follows:

to the extent that the expenditure has not already been directly or indirectly

(d) deducted in computing the taxpayer's income or loss from a business or property for the taxpayer's last taxation year or a previous taxation year in respect of the LNG source that includes the LNG facility, or

(e) taken into account in computing the balance of the taxpayer's capital investment account, for the LNG source that includes the LNG facility, at the end of the taxpayer's last taxation year or a previous taxation year;

"eligible expenditures" has the same meaning as in section 121.

(2) If a taxpayer is a member of a partnership that incurred an eligible closure expenditure in respect of an LNG facility, a computation must be made of the partnership's eligible expenditures in respect of the LNG facility.

(3) If a taxpayer is a member of a partnership that has an amount of eligible expenditures computed under subsection (2) in respect of an LNG facility, that amount is, for the purposes of paragraph (b) of the definition of "eligible expenditures" in section 121 (1) and to the extent of the taxpayer's share of that amount, an eligible partnership expenditure of the taxpayer in respect of the LNG facility.

Part 7 — Trusts

Trust taxed as individual

116  (1) For the purposes of this Act, a trust is deemed to be, in respect of the trust property, an individual.

(2) Subsection (1) does not affect the liability of a trustee for that person's own tax payable under this Act.

Limitation on deductions by trust

117  (1) For the purposes of subsection (2), the income of a trust is the trust's income computed without reference to the provisions of this Act.

(2) For greater certainty, in computing a trust's net operating income or net operating loss for a taxation year, the trust may not deduct an amount paid or payable in the taxation year as a distribution of income of that trust to or for the benefit of a beneficiary who has an income interest in that trust.

Deemed receipt of financial incentive by trust

118  For the purposes of this Act, if at a particular time a beneficiary of a trust has received a financial incentive in respect of the activities of the trust, the cost of property or an expense of the trust, the amount is deemed to have been received at that time by the trust as a financial incentive.

Contribution of property to trust

119  (1) For the purposes of this Act, if at any time a trust has acquired property by means of a contribution of property at the time of the creation of the trust or at a subsequent time,

(a) the trust is deemed to have acquired the property for an amount equal to its fair market value at that time, and

(b) the person or partnership that contributed the property is deemed to have disposed of the property for proceeds equal to that fair market value.

(2) Subsection (1) does not apply in relation to an acquisition of liquefied natural gas, natural gas liquids or natural gas.

Disposition of trust property

120  (1) For the purposes of this Act, if at any time a trust has disposed of trust property to a beneficiary of the trust or to a person or partnership that contributed the property to the trust,

(a) the trust is deemed to have disposed of the property for proceeds equal to the fair market value of that property at that time, and

(b) the beneficiary of the trust or the person or partnership that contributed the property is deemed to have acquired the property for an amount equal to that fair market value.

(2) Subsection (1) does not apply in relation to a disposition of liquefied natural gas, natural gas liquids or natural gas.

Part 8 — Closure Tax Credit

Definitions for this Part

121  (1) In this Part:

"eligible closure expenditure", in relation to a taxpayer in respect of an LNG facility, means, subject to subsections (2) and (3), an expenditure incurred by the taxpayer if

(a) the expenditure is required to comply with an obligation that is imposed

(i) under an Act of the Legislature or of the Parliament of Canada, and

(ii) in relation to the restoration, reclamation or remediation of the LNG facility site,

unless the expenditure is within a class of expenditures prescribed for the purposes of this paragraph,

(b) the expenditure is required to comply with an obligation assumed

(i) under a written agreement between the taxpayer and the government of British Columbia, the government of Canada, a municipality in Canada or a public body performing a function of government in Canada, and

(ii) in relation to the restoration, reclamation or remediation of the LNG facility site,

unless the expenditure is within a class of expenditures prescribed for the purposes of this paragraph, or

(c) the expenditure is within a class of expenditures prescribed for the purposes of this paragraph and is incurred in relation to the restoration, reclamation or remediation of the LNG facility site,

to the extent that the expenditure has not already been directly or indirectly taken into account in computing the taxpayer's net income, net operating income or net operating loss for the taxpayer's last taxation year or a previous taxation year in respect of the LNG source that includes the LNG facility;

"eligible expenditures", in relation to a taxpayer in respect of an LNG facility, means the total of

(a) all amounts each of which is an amount equal to the amount of an eligible closure expenditure incurred by the taxpayer in respect of the LNG facility less any amount that the taxpayer received or was entitled to receive in respect of an eligible closure expenditure, and

(b) all amounts each of which is, under section 115 (3) [eligible partnership expenditure], an eligible partnership expenditure of the taxpayer in respect of the LNG facility;

"last taxation year", in relation to a taxpayer in respect of an LNG source,

(a) subject to paragraph (b), means the taxpayer's taxation year in which there is a closure date for the applicable LNG facility, or

(b) if the taxpayer is a member of a partnership that incurred an eligible closure expenditure in respect of the applicable LNG facility, means the taxpayer's taxation year in which the partnership's fiscal period ends, during which fiscal period there is a closure date for that LNG facility.

(2) An expenditure incurred by the taxpayer is an eligible closure expenditure of the taxpayer in respect of an LNG facility only if the expenditure is incurred

(a) on or after the date the Oil and Gas Commission receives the notification referred to in section 122 (1) (a) in respect of the LNG facility, and

(b) on or before the closure date for the LNG facility.

(3) An expenditure incurred by the taxpayer is not an eligible closure expenditure of the taxpayer in respect of an LNG facility if

(a) the expenditure arises out of gross negligence or wilful misconduct of the taxpayer in relation to the operations of the LNG facility, or

(b) the expenditure arises out of gross negligence or wilful misconduct of a person or partnership in relation to the operations of the LNG facility and the taxpayer is not dealing at arm's length with the person or partnership at the time of the gross negligence or wilful misconduct.

Tax credit

122  (1) A taxpayer is eligible for a tax credit under this Part for the taxpayer's last taxation year in respect of an LNG source if

(a) before the end of the last taxation year or in a previous taxation year, the Oil and Gas Commission receives notification of an intention to permanently cease operations at the applicable LNG facility,

(b) the total of all amounts paid under section 18 [tax on net income] by the taxpayer for the last taxation year and for previous taxation years in respect of the LNG source exceeds the total of all amounts deducted under section 19 (1) (a), (b) or (c) [deduction from tax on net income] by the taxpayer for the last taxation year and for previous taxation years in respect of the LNG source, and

(c) the taxpayer applies for the tax credit for the last taxation year in accordance with section 124.

(2) An eligible taxpayer may claim, for the taxpayer's last taxation year in respect of an LNG source, a tax credit equal to the lesser of

(a) 5% of the taxpayer's eligible expenditures for the applicable LNG facility, and

(b) the amount of the excess under subsection (1) (b).

Deemed payment

123  A taxpayer who is eligible for and has claimed a tax credit under this Part for the taxpayer's last taxation year in respect of an LNG source is deemed to have paid, on the taxpayer's balance-due day for that last taxation year, the amount of the tax credit on account of the taxpayer's tax payable under this Act in respect of the LNG source.

Filing requirements

124  (1) A taxpayer who wishes to claim a tax credit under this Part for the taxpayer's last taxation year in respect of an LNG source must file, with the tax return filed for that last taxation year in respect of the LNG source,

(a) an application for the tax credit in the form, and containing the information, required by the minister, and

(b) other information and records required by the minister.

(2) A taxpayer is not entitled to a tax credit under this Part for the taxpayer's last taxation year in respect of an LNG source unless, within 18 months after the end of that last taxation year, the taxpayer files the application, other information and records as required under subsection (1).

Part 9 — Regulations

General regulation-making authority

125  (1) The Lieutenant Governor in Council may make regulations referred to in section 41 of the Interpretation Act.

(2) Without limiting subsection (1), the Lieutenant Governor in Council may make regulations respecting any matter for which regulations are contemplated by this Act.

(3) The authority to make regulations under another provision of this Act does not limit subsection (1) or (2).

(4) In making a regulation under this Act, the Lieutenant Governor in Council may do one or more of the following:

(a) delegate a matter to a person;

(b) confer a discretion on a person;

(c) make different regulations for different persons, places, things, circumstances or transactions, or for different classes of persons, places, things, circumstances or transactions;

(d) establish or define classes of persons, places, things, circumstances or transactions.

(5) A regulation made on or before December 31, 2019 under this Act may be made retroactive to the date this section comes into force or a later date, and if made retroactive is deemed to have come into force on the specified date.

Application of federal regulation

126  (1) The federal regulation applies, in so far as applicable, for the purposes of this Act except to the extent that a provision of the federal regulation

(a) is inconsistent with this Act or any regulations made under this Act, or

(b) is expressed by a regulation made under subsection (2) to be inapplicable.

(2) The Lieutenant Governor in Council may make regulations as follows:

(a) providing that provisions of the federal regulation do not apply for the purposes of this Act;

(b) providing for the circumstances in which and the extent to which, in any case of doubt, a provision of the federal regulation applies for the purposes of this Act;

(c) providing for any changes considered appropriate to the federal regulation as it applies for the purposes of this Act;

(d) without limiting paragraph (c) and section 125 (2), in relation to regulations relating to a provision of the federal Act that applies for the purposes of this Act, making regulations for the purposes of this Act under a regulation-making authority in the federal Act.

(3) For the purposes of subsection (2) (d), provisions of the federal Act that authorize the making of regulations apply for the purposes of this Act.

Regulations in relation to the cost of natural gas

127  For the purposes of section 51 (1) [notional cost of natural gas notionally acquired in month], the Lieutenant Governor in Council may make regulations as follows:

(a) respecting the determination of a pipeline fuel and losses adjustment in respect of an LNG facility;

(b) respecting the determination of the reference price for a month in respect of natural gas acquired in the month at the reference point, including, without limitation, price indices and other matters the minister must consider in determining the reference price;

(c) respecting the determination of the pipeline differential amount, including, without limitation,

(i) determining the distance in a straight line between the reference point and a feedstock pipeline inlet, and

(ii) identifying the feedstock pipeline inlet as upstream or downstream of the reference point.

Part 10 — Amendments to Income Tax Act

128 Section 18.1 of the Income Tax Act, R.S.B.C. 1996, c. 215, is amended by adding the following paragraph:

(j) section 172 [natural gas tax credit].

129 The following Part is added:

Part 13 — Natural Gas Tax Credit

Natural gas tax credit

172  (1) In this Part:

"LNG facility", "LNG facility inlet meter" and "natural gas" have the same meaning as in section 1 of the Liquefied Natural Gas Income Tax Act;

"notionally acquired" has the same meaning as in section 47 of the Liquefied Natural Gas Income Tax Act;

"qualifying corporation", for a taxation year, means a corporation that

(a) is a taxpayer as defined in section 1 of the Liquefied Natural Gas Income Tax Act, and

(b) has a permanent establishment in British Columbia at any time during the taxation year,

but does not include a corporation that is of a type or class of corporation prescribed by regulation.

(2) A qualifying corporation may deduct from its tax otherwise payable under this Act, for a taxation year that begins on or after January 1, 2017, an amount equal to the least of the following:

(a) the amount determined for the taxation year under subsection (3);

(b) the amount determined by the following formula:

amount = A - B
where
A  =  the amount, if any, of the tax payable for the taxation year under section 14 (2) or 16 (1) (b), as the case may be;
B  =  the amount, if any, of the tax that would be payable for the taxation year under section 14 (2) or 16 (1) (b), as the case may be, if the reference in those sections to "11%" were read as "8%";

(c) the amount of tax that would otherwise be payable but for the deduction under this subsection.

(3) The amount eligible for deduction under subsection (2) (a) for the taxation year is an amount equal to the total of the following:

(a) the qualifying corporation's annual natural gas tax credit for that taxation year;

(b) subject to subsection (7), the total of the qualifying corporation's annual natural gas tax credits for all preceding taxation years less any amounts that were previously deducted by the qualifying corporation under subsection (2).

(4) A qualifying corporation's annual natural gas tax credit for a taxation year that begins on or after January 1, 2017 is 0.5% of the qualifying corporation's eligible cost of natural gas for the taxation year.

(5) A qualifying corporation's eligible cost of natural gas for a taxation year is an amount equal to the total of the following:

(a) the total cost, as determined under the Liquefied Natural Gas Income Tax Act, of all natural gas acquired or notionally acquired in the taxation year by the qualifying corporation at the LNG facility inlet meters for an LNG facility;

(b) if the qualifying corporation is a member of a partnership, as determined under the Liquefied Natural Gas Income Tax Act, an amount equal to the qualifying corporation's appropriate portion of the partnership's eligible cost of natural gas for its taxation year ending in the taxation year of the qualifying corporation, as determined under subsection (6) of this section.

(6) For the purposes of subsection (5) (b), the following rules apply for determining the amount of a qualifying corporation's eligible cost of natural gas for a taxation year in respect of a partnership:

(a) the amount of the partnership's eligible cost of natural gas is to be determined by applying subsection (5) as if the partnership were a qualifying corporation and its fiscal period were its taxation year;

(b) the appropriate portion is that portion that may reasonably be considered to be the qualifying corporation's share of the amount determined under paragraph (a) of this subsection.

(7) For the purposes of subsection (3) (b), if a corporation

(a) does not meet, for a particular taxation year, the requirement set out in paragraph (b) of the definition of "qualifying corporation" in subsection (1), and

(b) was a qualifying corporation for a taxation year preceding the particular taxation year,

for all taxation years subsequent to the particular taxation year, the total of the corporation's annual natural gas tax credits for all taxation years preceding the particular taxation year, less any amounts that were previously deducted by the corporation under subsection (2) in those preceding taxation years, is deemed to be zero.

Commencement

130  This Act comes into force by regulation of the Lieutenant Governor in Council.

 
Explanatory Note

This Bill imposes a tax, effective for taxation years beginning on or after January 1, 2017, on income derived from liquefaction activities carried out at or in respect of an LNG facility in British Columbia.

For taxation years that begin on or after January 1, 2017 and before January 1, 2037, tax is imposed at a rate of 3.5% of a taxpayer's net income. For taxation years that begin on or after January 1, 2037, tax is imposed at a rate of 5% of a taxpayer's net income. A taxpayer's net income is the total of the taxpayer's net operating income and recaptured capital investment amounts less the taxpayer's net operating losses and capital investment amounts.

Tax is also imposed at a rate of 1.5% of the taxpayer's net operating income. The Bill provides that tax paid at the rate of 1.5% of net operating income can be deducted against tax paid on net income at the rate of 3.5% or 5% in current and subsequent taxation years. A taxpayer must pay tax separately in respect of each LNG facility at which liquefaction activities are carried out.

This Bill also does the following: