1994 Legislative Session: 3rd Session, 35th Parliament
FIRST READING


The following electronic version is for informational purposes only.
The printed version remains the official version.


HONOURABLE ELIZABETH CULL
MINISTER OF FINANCE AND
CORPORATE RELATIONS

BILL 15 -- 1994

CORPORATION CAPITAL
TAX AMENDMENT ACT, 1994

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

1 Section 1 (1) of the Corporation Capital Tax Act, S.B.C. 1992 , c. 4, is amended by repealing the definition of "amount taxable".

2 Sections 1, 3 (1) to (3), 14 (3) and 18 (b) are amended by striking out "amount taxable" and substituting "adjusted paid up capital".

3 Section 1 (1) is amended by repealing the definition of "taxable paid up capital".

4 Sections 1 (1), 3 (1) to (3) and (8), 14.3 (1) and (3), 14.4 and 18 (b) are amended by striking out "taxable paid up capital" wherever it appears and substituting "adjusted paid up capital".

5 Section 1 (1) is amended

(a) by adding the following definition:

"adjusted paid up capital" means,

(a) in respect of a corporation that is a nonresident at the end of an applicable taxation year, the net paid up capital employed in Canada of the corporation measured at the end of that taxation year minus any deductions permitted under sections 13 and 14, or

(b) in the case of any other corporation, the total paid up capital of the corporation measured at the end of its taxation year minus any deductions permitted under sections 11 to 14; ,

(b) by repealing the definition of "adjusted paid up capital" and substituting the following:

 "adjusted paid up capital" means the result obtained by subtracting the deduction, if any, made by a corporation under section 14.2 from the corporation's net B.C. paid up capital; ,

(c) by repealing the definition of "business" and substituting the following:

"business" means an undertaking of any kind, and includes

(a) any profession, calling, trade or manufacture,

(b) any adventure in the nature of trade,

(c) any concern in the nature of trade, and

(d) any arrangement or endeavour conducted with a view to earning revenue or profit from an activity or an investment; ,

(d) by adding the following definition:

"cooperative corporation" means a corporation, other than a credit union,

(a) that is incorporated, by or under a law of Canada or a province that provides for the establishment of the corporation or for the establishment of cooperative corporations generally, for the purposes of

(i) marketing natural products belonging to or acquired from its members or customers including any processing connected with or incidental to that marketing,

(ii) purchasing supplies, equipment or household necessities for, or to be sold to, its members or customers, or

(iii) performing services for its members or customers, and

(b) to which the following apply:

(i) the statute by or under which it is incorporated, its charter or its contracts with its members, or its members and customers, provides for payments to be made to them in proportion to patronage;

(ii) none of its members, other than other cooperative corporations, has more than one vote in the conduct of the affairs of the corporation;

(iii) at least 90% of its members are individuals or other cooperative corporations and at least 90% of its shares, if any, are held by individuals or other cooperative corporations; ,

(e) by repealing the definition of "current accounts payable" and substituting the following:

"current accounts payable" means, in respect of a corporation, partnership or joint venture, amounts that are reported as current liabilities in its taxation year end financial statements prepared in accordance with generally accepted accounting principles, and that represent

(a) its employee source deductions,

(b) its current taxes payable,

(c) its wages and salaries payable,

(d) its trade accounts payable,

(e) an amount payable to a creditor if

(i) the corporation, partnership or joint venture carries on the business of a retail automobile or truck dealership or a retail farm machinery and equipment dealer, and

(ii) the amount is secured by a purchase money security interest in itemized motor vehicle inventory or in itemized farm machinery and equipment inventory, and

(f) cheques issued by it for amounts referred to in paragraphs (a) to (e) and outstanding in excess of funds on deposit, but does not include any amounts that represent

(g) the current portion of long term indebtedness, or

(h) liabilities incurred more than 120 days before the end of its taxation year and not paid by the end of that taxation year; ,

(f) by adding the following definition:

"deferred credit" includes, in respect of a corporation, partnership or joint venture, government assistance, government grants, investment tax credits or tax incentives that are reported or accounted for in the financial statements of the corporation, partnership or joint venture; ,

(g) by adding the following definitions:

"family farm corporation" means a corporation

(a) 75% of the revenue of which is, in its taxation year, earned from farming in British Columbia,

(b) that is registered or licensed to carry on business in British Columbia, and

(c) of which the beneficial owners of 80% of the corporation's shares are individuals who are

(i) resident in British Columbia,

(ii) related to each other within the meaning of the regulations, and

(iii) actively engaged in farming or who are the parents, children or spouse of a person who is actively engaged in farming;

"farming" means one or more of the following:

(a) tillage of the soil;

(b) growing of cereals, vegetables, fruit, berries, nuts, grapes, mushrooms, hops, hay, clover, spices, herbs, nursery stock, seedlings and Christmas trees;

(c) raising or keeping of livestock or poultry;

(d) the raising or keeping of fur bearing animals, within the meaning of the Fur Farm Act, by a person licenced to do so under that Act;

(e) apiculture;

(f) dairy farming;

(g) floriculture, including the growing of edible flowers;

(h) production of seeds;

(i) raising or producing prescribed biological control agents;

(j) aquaculture;

(k) the raising or keeping of game, within the meaning of the Game Farm Act, by a person licensed to do so under that Act, but does not include

(l) operating a woodlot or raising or harvesting trees for lumber, fibre or firewood,

(m) raising or keeping race horses, operating a stable, dude ranch, stud farm or riding school,

(n) breeding pets or operating a kennel, or

(o) an office or employment under a person engaged in the business of farming;

"livestock" means cattle, horses, sheep, goats, swine, mules, asses and includes other animals designated by regulation as livestock; ,

(h) in the definition of "loans and advances to other corporations" by repealing paragraph (d),

(i) in the definition of "loans and advances to other corporations" by repealing paragraph (e) and substituting the following:

(e) advances and loans by the corporation to other corporations made within 120 days before the end of the taxation year of the corporation, unless the advances and loans were made by the corporation to an associated corporation, and

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

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

(j) by adding the following definitions:

"poultry" means domestic fowl, guinea fowl, ostriches, quails and pheasants and includes other creatures designated by regulation as poultry;

"purchase money security interest" has the same meaning as in the Personal Property Security Act;

"trade accounts payable" in respect of a corporation, partnership or joint venture means amounts owing by the corporation, partnership or joint venture to a creditor for the purchase of merchandise, supplies or services from that creditor in the normal course of business of the corporation, partnership or joint venture.

6 Section 1 is amended by adding the following subsection:

(4) For the purposes of this Act, a corporation is associated with another corporation at the end of the first corporation's taxation year if the corpo rations were, at any time during that taxation year, associated corporations.

7 Section 2 (4) (a) and (b) is repealed and the following substituted:

(a) the place, if any, designated as its head office in

(i) its charter, or

(ii) any other record or resolution by which the designation of a head office for the corporation can be effectively made;

(b) the place, if any, designated as its registered office in

(i) its charter, or

(ii) any other record or resolution by which the designation of a registered office for the corporation can be effectively made.

8 Section 3 is amended

(a) by striking out "$1 250 000" wherever it appears and substituting "$1 500 000",

(b) by striking out "$500 million" wherever it appears and substituting "$750 million",

(c) by adding the following subsection:

(6.1) Where a corporation is, under this section, required to pay a tax, this section imposes that tax on that corporation. , and

(d) in subsections (7) (a) and (8) (a) by adding "is not one of 2 or more associated corporations and" after "if, at the end of that taxation year, the corporation".

9 Section 4 (3) is amended by adding the following paragraphs:

(j) a family farm corporation;

(k) a cooperative corporation.

10 Section 13 is amended

(a) in subsection (1) by striking out "of the total paid up capital that is used by the corporation in jurisdictions outside British Columbia determined under prescribed rules." and substituting "of the total paid up capital that is allocated to jurisdictions outside British Columbia in accordance with prescribed rules.", and

(b) in subsection (2) by striking out ", determined under prescribed rules, of the net paid up capital employed in Canada used by the corporation in Canadian jurisdictions other than British Columbia." and substituting "of the net paid up capital employed in Canada that is allocated to Canadian jurisdictions other than British Columbia in accordance with prescribed rules."

11 Section 13 (1) is amended by striking out ", determined under prescribed rules, of the net paid up capital used by the corporation in jurisdictions outside British Columbia." and substituting "of the net paid up capital that is allocated to jurisdictions outside British Columbia in accordance with prescribed rules."

12 Section 14 is amended

(a) in subsection (2) (c) by striking out "an petroleum" and substituting "a petroleum",

(b) in subsection (3) by striking out "in the year in which the deduction under this section is taken",

(c) in subsection (3) (b) by striking out "for the second taxation year ending after March 31, 1992," and substituting "for each taxation year, other than the taxation year referred to in paragraph (a), ending on or before March 31, 1994,",

(d) in subsection (3) (c) by striking out "for the third and subsequent taxation years ending after March 31, 1992," and substituting "for each taxation year ending after March 31, 1994,", and

(e) in subsection (4) (a) by adding "this section or" after "under".

13 Section 14.2 is amended

(a) in subsection (1) by repealing the table headed "NET B.C. PAID UP CAPITAL" and substituting the following:

NET B.C. PAID UP CAPITAL
EXCEEDS BUT DOES NOT EXCEED DEDUCTION
$1 499 999 $1 525 000 $1 333 000
1 525 000 1 550 000 1 199 000
1 550 000 1 575 000 1 065 000
1 575 000 1 600 000 931 000
1 600 000 1 625 000 797 000
1 625 000 1 650 000 663 000
1 650 000 1 675 000 529 000
1 675 000 1 700 000 395 000
1 700 000 1 725 000 261 000
1 725 000 1 750 000 127 000

(b) in subsections (1) and (2) by striking out "$1 500 000" and substituting "$1 750 000", and

(c) in subsections (1) and (2) by striking out "$1 250 000" and substituting "$1 500 000".

14 Section 14.3 (3) is repealed and the following substituted:

(3) The partnership or joint venture amounts of which a corporation must account for its proportionate share under this Act are those amounts referred to in subsection (1) that are disclosed, as at the following dates, by the non-consolidated financial statements of the partnership or joint venture, using generally accepted accounting principles other than the equity method of accounting:

(a) if the partnership or joint venture has a taxation year end that falls within the corporation's taxation year in respect of which the computation of the corporation's adjusted paid up capital is made, as at the end of that taxation year of the partnership or joint venture;

(b) if there is no taxation year end of the partnership or joint venture that falls within that taxation year of the corporation, as at the taxation year end of the partnership or joint venture immediately preceding that taxation year of the corporation.

15 Section 14.4 is repealed and the following substituted:

General rules applicable to adjusted paid up capital

14.4 (1) In this section

"avoidance transaction" means a transaction

(a) that, but for this section, would result, directly or indirectly, in a tax benefit, or

(b) that is part of a series of transactions, which series, but for this section, would result, directly or indirectly, in a tax benefit, but does not include a transaction that may reasonably be considered

(c) to have been undertaken or arranged primarily for bona fide purposes other than one or both of the following:

(i) to obtain the tax benefit;

(ii) to reduce, avoid or defer a tax or other amount payable as tax or in respect of tax under any other federal or provincial Act or increase a refund of tax or other amount in respect of tax under any other federal or provincial Act, or

(d) to be a transaction that would not result directly or indirectly in a misuse of the provisions of this Act or an abuse having regard to the provisions of this Act, other than this section, read as a whole;

"tax benefit" means a reduction, avoidance or deferral of tax or other amount payable under this Act or an increase in a refund of tax or other amount under this Act;

"tax consequences" to a corporation means the adjusted paid up capital or the tax or other amount payable by, or refundable to, the corporation under this Act, or any other amount that is relevant for the purposes of computing that amount;

"transaction" includes an arrangement or event.

(2) If a transaction is an avoidance transaction, the tax consequences to a corporation shall be determined as is reasonable in the circumstances in order to deny a tax benefit that, but for this section, would result, directly or indirectly, from that transaction or from a series of transactions that include that transaction.

(3) Without limiting subsection (2),

(a) any deduction in computing the adjusted paid up capital or any deduction in computing tax payable may be allowed or disallowed in whole or in part,

(b) the whole or any part of such deduction may be allocated to any corporation,

(c) the nature of any payment or other amount may be recharacterized, and

(d) the tax effects that would otherwise result from the application of other provisions of this Act may be ignored, in determining the tax consequences to a corporation as is reasonable in the circumstances in order to deny a tax benefit that would but for this section, result, directly or indirectly, from an avoidance transaction.

(4) The tax consequences to any corporation, following the application of this section, shall only be determined through a notice of assessment under section 25.

(5) For the purposes of this Act, a corporation shall determine its adjusted paid up capital on the basis of its non-consolidated financial statements using generally accepted accounting principles other than the equity method of accounting.

16 Section 15 is amended

(a) by repealing subsection (1) and substituting the following:

(1) A corporation that is subject to tax under this Act shall, on or before the date that is 184 days after the end of the corporation's taxation year and without notice or demand,

(a) deliver a return to the administrator, and

(b) pay to the minister the estimated tax or, if instalment payments have been made under section 16, the difference between the estimated tax and the amount paid by instalments. ,

(b) by repealing subsection (4), and

(c) by adding the following subsection:

(7) If a corporation fails or neglects to comply with subsection (1) (b), the corporation shall pay interest on the amount it failed or neglected to pay calculated from the date on which the payment was required until the date that the payment plus all accrued interest is made.

17 Section 16 is amended

(a) by repealing subsection (2) and substituting the following:

(2) Except as otherwise provided in this section, a corporation shall, on or before the 15th day of each of the 3rd, 6th, 9th and 12th calendar months to follow the calendar month in which the corporation's current taxation year begins, pay an instalment equal to 25% of the amount that is determined under subsection (4) to be its estimated tax payable for the current taxation year. , and

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

(12) If the aggregate amount of the instalments paid by a corporation under this section exceeds the tax payable for the taxation year in respect of which the instalments were paid, the amount by which an instalment exceeded 25% of the amount of the corporation's tax payable for that taxation year earns interest from the later of the due date of the instalment and the date that the overpayment was made.

18 Sections 16 (1) and (10) and 46 are amended by striking out "tax liability" wherever it appears and substituting "tax payable".

19 Section 25 (2) and (3) is repealed and the following substituted:

(2) If a notice of assessment provided to a corporation under subsection (1) (b) indicates that the amount of tax payable by the corporation is greater than the amount estimated by the corporation in its return, the corporation shall pay to the minister the amount by which the corporation's tax payable exceeds the amount estimated by the corporation in its return not later than 29 days after the date on which the notice of assessment is given.

(3) A corporation referred to in subsection (2) shall pay interest on the amount by which the corporation's tax payable exceeds the amount estimated by the corporation in its return, calculated from the date that is 184 days after the end of the corporation's taxation year to and including the date on which payment of that amount plus all accrued interest is made.

20 Section 28 (2) is amended by striking out "mailed" and substituting "given by mailing it".

21 Section 43 is amended by adding the following subsection:

(4) A corporation referred to in this section shall pay any penalty applicable to it whether or not the corporation is also obliged to pay any interest under this Act.

22 Section 45 is amended by renumbering the section as section 45 (1) and by adding the following subsection:

(2) Regulations that may be made under this Act may be made retroactive to April 1, 1992 or such later date as the Lieutenant Governor in Council may determine and a regulation made retroactive is deemed to come into force on the date specified on the regulation.

Commencement

23 (1) Sections 1, 2, 5 (a), (c) and (f), 8 (c), 10, 16 to 19, 21 and 22 are deemed to have come into force on April 1, 1992 and are retroactive to the extent necessary to give them effect on and after that date.

(2) Sections 3, 4, 5 (b), (h) and (i), 7, 8 (d) and 12 are deemed to have come into force on April 1, 1993 and are retroactive to the extent necessary to give them effect on and after that date.

(3) Sections 5 (d), (e), (g) and (j), 6, 8 (a) and (b), 9, 13 to 15 and 20 are deemed to have come into force on April 1, 1994 and are retroactive to the extent necessary to give them effect on and after that date.

(4) Section 11 is deemed to come into force on April 1, 1993, immediately after the coming into force of section 25 of the Corporation Capital Tax Amendment Act, 1993, and is retroactive to the extent necessary to give it effect on and after that date.

 
Explanatory Notes

SECTIONS 1 to 4: replace the terms "amount taxable" and "taxable paid up capital" in the Corporation Capital Tax Act with the term "adjusted paid up capital".

SECTION 5:

(a) and (b) is consequential to the amendments effected by sections 1 to 4 of this Bill and defines the term "adjusted paid up capital";

(c) adds, as an undertaking included in the definition of "business" in the Corporation Capital Tax Act, any arrangement or endeavour intended to earn revenue or profit;

(d) adds a definition of "cooperative corporation";

(e) clarifies what is included in and excluded from the term "current accounts payable" as defined in the Corporation Capital Tax Act;

(f) clarifies that "deferred credit", within the meaning of the Corporation Capital Tax Act, includes any government assistance that is recorded in the financial statements;

(g) adds definitions of "family farm corporation", "farming" and "livestock";

(h) and (i) clarifies what is included in and excluded from the term "loans and advances to other corporations" within the meaning of the Corporation Capital Tax Act;

(j) adds definitions of "purchase money security interest" and "poultry" and "trade accounts payable".

SECTION 6: clarifies that for the purposes of calculating the tax payable under section 3 of the Corporation Capital Tax Act, the Income Tax Act (Canada) concept of associated corporations is to be used.

SECTION 7: clarifies that an office designated as a head office or a registered office of a corporation in any specified corporate record is a permanent establishment of the corporation.

SECTION 8:

(a) increases the thresholds beyond which tax is payable;

(b) increases the thresholds beyond which a higher rate of tax is payable;

(c) clarifies that the tax imposed by the Corporation Capital Tax Act is imposed on the corporation;

(d) clarifies that section 3 (7) (a) and (8) (a) of the Corporation Capital Tax Act refers only to corporations that are not associated corporations.

SECTION 9: exempts family farm corporations and cooperative corporations from taxation under the Corporation Capital Tax Act.

SECTIONS 10 and 11:harmonizes the wording of the Corporation Capital Tax Act and its regulations.

SECTION 12:

(a) corrects a typographical error;

(b) clarifies that the deductions permitted under section 14 (3) of the Corporation Capital Tax Act are permitted only to the extent that they are not written off to retained earnings at any time;

(c) provides that the eligible expenditures incurred by a corporation in a taxation year ending before April 1, 1994 may be deducted in that taxation year;

(d) provides that, in relation to corporate taxation years ending after March 31, 1994, a deduction may be taken for eligible expenditures incurred in that taxation year and in the immediately preceding taxation year;

(e) clarifies that only one deduction under section 14 of the Corporation Capital Tax Act may be taken in any taxation year.

SECTION 13: provides for a revised notch deduction where the net B.C. paid up capital of a corporation or a group of associated corporations is between $1.5 million and $1.75 million.

SECTION 14: provides rules for determining which partnership or joint venture amounts must be accounted for in the calculation of a corporation's adjusted paid up capital.

SECTION 15: provides more detailed direction on what constitutes an unacceptable avoidance of tax under the Corporation Capital Tax Act.

SECTION 16:

(a) clarifies that the return and tax referred to in section 15 (1) of the Corporation Capital Tax Act must be provided within 184 days of the taxpayer's year end;

(b) repeals a subsection rendered unnecessary by the amendment effected by paragraph (a);

(c) clarifies when and how interest is to be imposed on amounts not paid as and when required.

SECTION 17:

(a) clarifies when instalment payments are due under the Corporation Capital Tax Act;

(b) clarifies when and how credit interest is payable to a taxpayer on overpayments.

SECTION 18: is self explanatory.

SECTION 19: clarifies that, where an assessment determines additional taxes are required, that additional tax amount must be paid within 29 days after the date on which the notice of assessment is given and provides that interest is payable on that additional tax amount from the date that is 184 days after the end of the corporation's taxation year.

SECTION 20: harmonizes the wording of section 28 (2) of the Corporation Capital Tax Act with the balance of the Act.

SECTION 21: clarifies that a corporation may be liable to both interest and penalties where appropriate.

SECTION 22: permits regulations made under the Corporation Capital Tax Act to be made retroactively to reflect amendments to that Act.


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