1997 Legislative Session: 2nd Session, 36th Parliament
FIRST READING


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


HONOURABLE ANDREW PETTER
MINISTER OF FINANCE AND
CORPORATE RELATIONS AND
MINISTER RESPONSIBLE FOR
INTERGOVERNMENTAL RELATIONS

BILL 3 -- 1997

CORPORATION CAPITAL TAX
AMENDMENT ACT, 1997

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, R.S.B.C. 1996, c. 73, is amended

(a) in the definition of "current accounts payable" by striking out "corporation, partnership or joint venture" wherever it appears and substituting "corporation or partnership",

(b) in the definition of "deferred credit" by striking out "corporation, partnership or joint venture" wherever it appears and substituting "corporation or partnership",

(c) by repealing the definitions of "loans and advances made by the partnership or joint venture to corporations" and "loans and advances to other corporations" and substituting the following definition:

"loans and advances to corporations", in relation to a corporation or a partnership, as the case may be, includes

(a) accounts receivable, owed to the corporation or partnership by other corporations, that became receivable by the corporation or partnership more than 120 days before the end of its taxation year,

(b) holdbacks receivable, owed to the corporation or partnership by other corporations, that became receivable by the corporation or partnership more than 120 days before the end of its taxation year, and

(c) bonds, debentures, mortgages and similar obligations of other corporations acquired by the corporation or partnership more than 120 days before the end of its taxation year,

but does not include

(d) any loan or advance made or acquired by the corporation or partnership within 120 days before the end of its taxation year, unless, in the case of a loan or advance made or acquired by a corporation,

(i) the loan or advance is owed to the corporation by an associated corporation,

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

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

(e) any amount provided to or for the benefit of a savings institution as a result of which the savings institution is or becomes indebted to the corporation or partnership, including

(i) a deposit by the corporation or partnership with the savings institution, and

(ii) a loan or advance evidenced by bank paper or similar paper in use by a savings institution other than a bank, including certificates of deposit, bearer deposit notes, swap deposits and banker's acceptances,

(f) any debt owed to the corporation or partnership by a corporation described in paragraph 149 (1) (c) or (d) of the Income Tax Act (Canada) that is exempt from tax under section 4 of this Act, or

(g) any loan or advance made or acquired by the corporation or partnership as part of a series of loans and repayments intended to unduly or artificially reduce the adjusted paid up capital of any corporation; ,

(d) by adding the following definition:

"savings institution" means

(a) a bank,

(b) a credit union,

(c) an insurance company,

(d) a trust company, and

(e) a financial institution that accepts deposits from the public in the normal course of its business; , and

(e) in the definition of "trade accounts payable" by striking out "corporation, partnership or joint venture" wherever it appears and substituting "corporation or partnership".

2 Section 1 (3) is repealed and the following substituted:

(3) For the purposes of this Act, a corporation has an interest in any partnership in which it, or a partnership in which it has an interest, is a partner.

3 Section 1 is amended by adding the following subsections:

(5) Except as otherwise provided in this Act, for the purposes of determining the carrying value of the assets of a corporation, or of a partnership in which a corporation has an interest, or any other amount relevant to the computation of a corporation's adjusted paid up capital for a taxation year, the amounts that must be used are the amounts reflected in the financial statements of the corporation for the taxation year that have been

(a) prepared in accordance with generally accepted accounting principles, and

(b) presented to the shareholders of the corporation or the members of the partnership, as the case may be.

(6) Despite subsection (5), the equity and consolidation methods of accounting, other than the proportionate consolidation method for joint ventures, must not be used for the purposes referred to in that subsection.

(7) If the financial statements referred to in subsection (5) were not prepared, the amounts that would have been reflected in those financial statements if they had been prepared must be used for the purposes referred to in that subsection.

4 Section 2 is amended

(a) in subsection (1) by repealing the definition of "corporation" and substituting the following:

"corporation" includes a partnership; ,

(b) by repealing subsection (7) and substituting the following:

(7) A corporation

(a) that otherwise has a permanent establishment in Canada, or

(b) to which section 14 applies

is deemed to have a permanent establishment on land it owns, or has a right or interest in, in Canada. , and

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

(12) If a partnership has a permanent establishment at a place, a corporation that has an interest in the partnership is deemed to have a permanent establishment at that place.

5 Section 6 is amended

(a) by repealing subsection (1),

(b) in subsection (2) by striking out "coincides with" and substituting "is the same as", and

(c) by adding the following subsection:

(2.1) The taxation year of a partnership is the same as its fiscal period under the Income Tax Act (Canada).

6 Section 7 (1) (d) is repealed and the following substituted:

(d) proportionate share, as computed under section 16 (2), of the partnership amounts referred to in section 16 (1) (c), if any, that are applicable to each of the partnerships in which the bank, trust company or credit union has an interest.

7 Section 8 (e) is repealed and the following substituted:

(e) proportionate share, as computed under section 16 (2), of the partnership amounts referred to in section 16 (1) (a) and (c), if any, that are applicable to each of the partnerships in which the corporation has an interest.

8 Section 9 (d) is repealed and the following substituted:

(d) proportionate share, as computed under section 16 (2), of the partnership amounts referred to in section 16 (1) (b) and (c), if any, that are applicable to each of the partnerships in which the corporation has an interest.

9 Section 10 (c) and (d) is repealed and the following substituted:

(c) in the case of a corporation that is solely engaged in exploration for a mineral resource, petroleum or natural gas, the amount, if any, by which the aggregate of the exploration costs incurred by the corporation that are

(i) included in the cost of capital assets disclosed on the corporation's balance sheet at the end of that taxation year, and

(ii) not deducted under section 13 at the end of that taxation year,

exceeds the aggregate of the amounts of amortization, depreciation and other charges taken into account in computing the corporation's income or loss for the taxation year or any preceding taxation year in accordance with generally accepted accounting principles in respect of those exploration costs, and

(d) the aggregate of all amounts, each of which is the corporation's proportionate share, as computed under section 16 (2), of the exploration costs incurred by a partnership in which the corporation has an interest that would be deductible under paragraph (c) of this section if the partnership were a corporation.

10 Section 11 (1) is amended

(a) by striking out ", prepared using generally accepted accounting principles other than the equity method of accounting,",

(b) by repealing paragraph (b) and substituting the following:

(b) if the corporation has an interest in a partnership, the proportionate share, as computed under section 16 (2), of the aggregate of the carrying values of the partnership assets on the partnership's balance sheet, , and

(c) in paragraph (c) by striking out "or joint venture".

11 Section 11 (2) is amended

(a) in paragraph (c) by striking out "other",

(b) by adding the following paragraph:

(f.1) the corporation's loans and advances to partnerships in which the corporation does not have an interest, but only if

(i) all the members of the partnership, throughout the corporation's taxation year, are corporations, and

(ii) the loans and advances would qualify under paragraph (c) if made to each member of the partnership; , and

(c) by repealing paragraph (g) and substituting the following:

(g) the aggregate of all amounts, each of which is the corporation's proportionate share, as computed under section 16 (2), of the carrying value of investments of a partnership in which the corporation has an interest that would be investments of a corporation under paragraphs (a) to (f) of this subsection if that partnership were a corporation.

12 Section 13 is amended

(a) in subsection (1) by repealing the definitions of "B.C. development expenditure", "B.C. exploration expenditure", "B.C. research expenditure" and "eligible expenditure" and substituting the following:

"B.C. exploration and development expenditure", with respect to a corporation for a taxation year, means an expenditure that is

(a) made by the corporation in the taxation year with respect to the exploration for, or development of, oil, gas or mining properties located in British Columbia,

(b) not incurred to purchase, lease or acquire property, and

(c) included in the cost of capital assets disclosed on the corporation's balance sheet at the end of the taxation year;

"B.C. research expenditure", with respect to a corporation for a taxation year, means an expenditure

(a) made by the corporation in the taxation year in respect of research and development activities carried on in British Columbia, and

(b) included in deferred development costs disclosed on the corporation's balance sheet at the end of the taxation year;

"eligible expenditure", with respect to a corporation for a taxation year, means

(a) a B.C. exploration and development expenditure of the corporation for the taxation year,

(b) a B.C. research expenditure of the corporation for the taxation year, and

(c) the cost of eligible property and eligible tourism property incurred by the corporation in the taxation year; , and

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

(3) Subject to subsection (4), there may be deducted from the B.C. paid up capital of a corporation that is not a bank, trust company or credit union, at the end of its taxation year, the aggregate of

(a) the amount, if any, by which the aggregate of the eligible expenditures of the corporation for the taxation year exceeds the aggregate of the amounts of amortization, depreciation and other charges taken into account in computing the corporation's income or loss for the taxation year in accordance with generally accepted accounting principles in respect of those eligible expenditures,

(b) the amount, if any, by which the aggregate of the eligible expenditures of the corporation for the immediately preceding taxation year exceeds the aggregate of

(i) the eligible expenditures of the corporation for the immediately preceding taxation year with respect to property that does not qualify as eligible property or eligible tourism property of the corporation at the end of the taxation year, and

(ii) the amounts of amortization, depreciation and other charges taken into account in computing the corporation's income or loss for the taxation year and the immediately preceding taxation year in accordance with generally accepted accounting principles in respect of the eligible expenditures referred to in this paragraph, and

(c) all amounts, each of which is the corporation's proportionate share, as computed under section 16 (2) of the amounts that would be deductible under paragraphs (a) and (b) by a partnership in which the corporation has an interest if the partnership were a corporation.

13 Section 14 is amended

(a) in subsection (1) in the definition of "Canadian assets" by repealing paragraph (b) and substituting the following:

(b) the corporation's proportionate share, as computed under section 16 (2), of the assets of any partnership in which the corporation has an interest that are used or held by the partnership for or in relation to any business carried on by it through a permanent establishment in Canada in the taxation year of the partnership; ,

(b) in subsection (1) by repealing the definition of "corporation's current accounts payable" and substituting the following:

"corporation's current accounts payable" includes, for a corporation that has an interest in a partnership, the corporation's proportionate share, as computed under section 16 (2), of the current accounts payable of the partnership as at the end of the taxation year of the partnership. , and

(c) by adding the following subsection:

(4) For the purposes of this section, a corporation or a partnership that has a permanent establishment on land that it owns, or that it has a right or interest in, in Canada, at the end of a taxation year is deemed

(a) to carry on business during the year through that permanent establishment, and

(b) to use or hold the land for or in relation to that business.

14 Section 16 is repealed and the following substituted:

Partnerships

16 (1) A corporation that has an interest in a partnership must include, in computing the corporation's adjusted paid up capital, the corporation's proportionate share of the following partnership amounts:

(a) in the case of a corporation to which section 8 applies, the subordinate indebtedness of the partnership;

(b) liabilities of the partnership, whether secured or unsecured, including any deferred credit but excluding

(i) current accounts payable, and

(ii) amounts owing by the partnership to the corporation or to other corporations that have an interest in the partnership;

(c) the earnings or losses of the partnership accumulated after the corporation acquired an interest in the partnership.

(2) For the purposes of this Act, a corporation's proportionate share of partnership amounts must be computed on the same basis that the corporation's share of the income or loss from the partnership is computed.

(3) The amounts in respect of a partnership, for which a corporation must account for its proportionate share under this Act for a taxation year, are the amounts determined

(a) if the partnership 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

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

15 Section 17 (5) is repealed.

16 Sections 32 (1) and 33 (3) is amended by striking out "60 days" wherever it appears and substituting "90 days".

Commencement

17 (1) Subject to subsection (2), this Act is deemed to have come into force on April 1, 1997 and is retroactive to the extent necessary to give it effect on and after that date.

(2) Section 16 is deemed to have come into force on March 26, 1997 and is retroactive to the extent necessary to give it effect on and after that day.

 
Explanatory Notes

[This Bill amends the Revised Statutes of British Columbia, 1996. The Revised Statutes of British Columbia, 1996 come into force on April 21, 1997.]

SECTION 1: [Corporation Capital Tax Act, amends section 1 (1)]

(a) and (b) removes reference to joint ventures as a result of amendments proposed to section 16;

(c) simplifies definitions of "loans and advances" in relation to corporations and partnerships and

(d) adds a definition of "savings institution";

(e) removes reference to joint ventures as a result of amendments proposed to section 16.

SECTION 2: [Corporation Capital Tax Act, repeals and replaces section 1 (3)] removes reference to joint ventures as a result of amendments proposed to section 16.

SECTION 3: [Corporation Capital Tax Act, amend section 1 by adding subsections (5) to (7)] replaces the rule in section 17 (5) and clarifies which financial statements are to be used in determining the tax base.

SECTION 4: [Corporation Capital Tax Act, amends section 2]

(a) repeals and replaces definition of "corporation" to remove reference to joint ventures as a result of amendments proposed to section 16;

(b) clarifies that a non-resident corporation that owns land in Canada is deemed to have a permanent establishment on that land;

(c) repeals and replaces subsection (12) to remove reference to joint ventures.

SECTION 5: [Corporation Capital Tax Act, amends section 6]

(a) repeals subsection (1) consequential on the addition of subsection (2.1);

(b) makes wording consistent with new rule in subsection (2.1);

(c) clarifies that the taxation year of a partnership is the same as its fiscal period under the Income Tax Act (Canada).

SECTIONS 6 to 8: [Corporation Capital Tax Act, repeals and replaces sections 7 (1) (d), 8 (e) and 9 (d)] removes reference to joint ventures as a result of amendments proposed to section 16.

SECTION 9: [Corporation Capital Tax Act, repeals and replaces section 10 (c) and (d)]clarifies what exploration costs may be deducted from a corporation's aggregate paid up capital.

SECTION 10: [Corporation Capital Tax Act, amends section 11 (1)]

(a) is consequential to the addition of section 1 (5) to (7);

(b) is consequential to the new partnership rules in section 16;

(c) removes reference to joint ventures as a result of amendments proposed to section 16.

SECTION 11: [Corporation Capital Tax Act, amends section 11 (2)]

(a) is consequential to the new definition of "loans and advances to corporations";

(b) clarifies which loans and advances to partnerships are eligible for an investment allowance;

(c) is consequential to the new partnership rules in section 16.

SECTION 12: [Corporation Capital Tax Act, amends section 13]

(a) replaces definition in subsection (1) to harmonize with generally accepted accounting principles;

(b) repeals and replaces subsection (3) to clarify what B.C. eligible expenditures may be deducted in computing a corporation's tax base.

SECTION 13: [Corporation Capital Tax Act, amends section 11 (2)]

(a) and (b) removes reference to joint ventures as a result of amendments proposed to section 16;

(c) clarifies that a non-resident corporation that has a permanent establishment on land owned in British Columbia is subject to tax.

SECTION 14: [Corporation Capital Tax Act, re-enacts section 16]

SECTION 15: [Corporation Capital Tax Act, repeals section 17 (5)] is consequential to the addition of section 1 (5) to (7).

SECTION 16: [Corporation Capital Tax Act, amends section 32 (1) and 33 (3)] extends the appeal period from 60 to 90 days.


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