2014 Legislative Session: Third Session, 40th Parliament
HANSARD
The following electronic version is for informational purposes only.
The printed version remains the official version.
official report of
Debates of the Legislative Assembly
(hansard)
Tuesday, November 25, 2014
Afternoon Sitting
Volume 18, Number 7
ISSN 0709-1281 (Print)
ISSN 1499-2175 (Online)
CONTENTS | |
Page | |
Routine Business | |
Personal Statement | 5571 |
Withdrawal of comments made in the House | |
Hon. B. Bennett | |
Introductions by Members | 5571 |
Orders of the Day | |
Committee of the Whole House | 5571 |
Bill 4 — Miscellaneous Statutes Amendment Act (No. 2), 2014 (continued) | |
M. Farnworth | |
Hon. S. Anton | |
S. Robinson | |
V. Huntington | |
B. Ralston | |
Hon. R. Coleman | |
Report and Third Reading of Bills | 5578 |
Bill 4 — Miscellaneous Statutes Amendment Act (No. 2), 2014 | |
Committee of the Whole House | 5578 |
Bill 6 — Liquefied Natural Gas Income Tax Act | |
Hon. M. de Jong | |
B. Ralston | |
TUESDAY, NOVEMBER 25, 2014
The House met at 1:31 p.m.
[Madame Speaker in the chair.]
Routine Business
Personal Statement
WITHDRAWAL OF COMMENTS
MADE IN THE HOUSE
Hon. B. Bennett: Madame Speaker, I hereby withdraw remarks I made during question period this morning with respect to a member opposite misleading the House — two members.
Madame Speaker: Thank you, Member.
Introductions by Members
C. James: I have a very exciting announcement for staff in the building. One of all of our staff, Ismael Ribeiro in Hansard broadcasting services, with his wife, Angela, are the very proud parents of a new son, brother to Isabella, who was born at 1:28 a.m. this morning at 8 lbs. I know the entire House will want to wish them very well and congratulations and a few hours’ sleep over the next little while.
D. Ashton: It gives me great pleasure today to introduce a gentleman from the area where I’m from, Penticton. This gentleman kind of took me underneath his wing when I was a young political neophyte learning to be a councillor. Mike Pearce, Queen’s Counsel, from Penticton, a former councillor and mayor of Quesnel and a former councillor and mayor of Penticton.
Welcome, Mike. Nice to see you.
Orders of the Day
Hon. M. Polak: I call continued committee stage debate on Bill 4.
Committee of the Whole House
BILL 4 — MISCELLANEOUS STATUTES
AMENDMENT ACT (No. 2), 2014
(continued)
The House in Committee of the Whole on Bill 4; D. Horne in the chair.
The committee met at 1:34 p.m.
On the amendment to section 9 (continued).
The Chair: Is the House is ready to deal with the amendment?
Amendment negatived on the following division:
YEAS — 2 | ||
Huntington |
| Weaver |
NAYS — 73 | ||
Sturdy | Bing | Hogg |
Yamamoto | McRae | Stone |
Fassbender | Wat | Thomson |
Rustad | Wilkinson | Pimm |
Sultan | Reimer | Ashton |
Morris | Hunt | Sullivan |
Cadieux | Lake | Polak |
de Jong | Coleman | Anton |
Bond | Bennett | Letnick |
Barnett | Yap | Thornthwaite |
Dalton | Plecas | Lee |
Kyllo | Tegart | Michelle Stilwell |
Hammell | Robinson | Farnworth |
Horgan | James | Ralston |
Corrigan | Fleming | Popham |
Kwan | Conroy | Austin |
Throness | Larson | Foster |
Macdonald | Karagianis | Eby |
Mungall | Bains | Elmore |
Shin | Heyman | Darcy |
Donaldson | Krog | Trevena |
D. Routley | Simons | Fraser |
Bernier | Martin | Gibson |
Chouhan | Rice | Holman |
| B. Routley |
|
M. Farnworth: Following up on the amendment in terms of…. We were talking about consultation before the lunch recess, and the minister was talking about her view of consultation. We’ve talked about public consultation. I’ve commented on the need for real public consultation and involvement, particularly in regional services, regional service areas when changes are being made. The member for Delta South has talked about local government consultation and the importance of that.
We have a few more questions in that particular area. Then we will move our way through to some of the other parts of section 9.
I see a smile on the minister’s face.
Interjection.
[ Page 5572 ]
M. Farnworth: Well, Minister, if you’re concerned about that, just spare a thought for my colleague from Surrey-Whalley and the Minister of Finance, who have, I think, 100-some-odd sections on the tax bill to go through. That’s real.
Interjection.
The Chair: But we do digress.
M. Farnworth: No, that’s good.
Anyway, back onto the topic at hand, which is consultation with local government.
The minister has talked about…. You know, we have had great consultation in the past, but that’s under existing legislation. These changes give the ministry and the minister and the government significantly more powers.
The question, I think, and what we want on the record, is a commitment to consultation with local government, a commitment to the consultation with individual municipalities that are affected by these decisions. We want to make sure that that commitment is there and that it is fulsome and adequate.
If the minister could outline her thoughts on how consultation processes will take place with local governments, whether at UBCM with that regional district level but also at the individual municipal level, that would be helpful in getting through this particular section.
Hon. S. Anton: Policing is a matter of mutual interest between the province of British Columbia and municipalities and, indeed, all British Columbians. We do have established processes around consultation. My director of police services, for example, regularly attends the UBCM public safety committee meetings, the Lower Mainland mayors forum, B.C. Association of Chiefs of Police and just generally consultation around the province.
That is how we do business now, and it is how we intend to continue doing business in British Columbia. The structure of our integrated units now and our specialized policing units as they currently exist is through collaboration. We intend to continue that practice.
S. Robinson: I’ve been listening to the questions and responses for the last little while. I have a question that comes out of section 9, and it’s (3)(e), where it notes that “the processes to be used to inform, and obtain input from, the community about the provision of the services” will be a factor here in this service agreement.
I’d like to hear from the minister what she understands to be the community. It’s on page 6 of the bill. I’d like to know: what does the minister understand as the community, and what input, specifically, will they be seeking when this is enacted?
Hon. S. Anton: In order have a specialized policing service under this section, and before it can come to cabinet, there’s a lot of upfront work that needs to be done, including determining who the provider is and entering into a specialized service agreement with that provider.
The specialized service agreement would contain a number of terms, which are included in that 4.02, including subsection 3(e), which the member has asked about.
That section there is intended to be interpreted broadly. It would be reliant on the form of specialized policing that was contemplated. Generally, the input would be local government. It could be community members or stakeholders.
Again, it would depend on the specialized service. If the specialized service was a domestic violence unit, it might be one form of community. If the specialized service was a form of rather complicated Internet crime, for instance, it would be a different community.
It’s not possible at this point to say what community would look like, but community would be defined each time there was an agreement entered into.
M. Farnworth: Also in section 9 under 4.03 is the “Duty of municipalities to use and pay for specialized services” section.
Again, this is another one of those areas where municipalities have a number of questions and concerns about exactly how the government intends to implement this section.
If the minister could outline the intent of the section — how they see municipalities participating financially — that would be a good place to start.
Hon. S. Anton: Section 4.03 is the section which determines…. It’s a reflection of the rest of the Police Act. It’s not actually how you decide the cost of a specialized service. It’s more about the allocation.
Under the Police Act, if you are a municipality with more than 5,000 persons, you pay either 70-30 or 90-10 or 100 percent depending on whether you’re municipal or RCMP. And if you’re less than that, it becomes a provincial service. So this is simply a reflection of that cost allocation in the Police Act.
M. Farnworth: Then, for municipalities that are currently outside and not participating…. That’s the question I’m actually wanting to see. How will this apply to…? I don’t want to keep harping on Delta, but let’s say Delta. Or if you don’t want Delta, another specialized service area. Let’s say, for example….
Interjections.
M. Farnworth: That’s okay. Even now, I’m going: “You know what? We do have to kind of move along.”
[ Page 5573 ]
In terms of specialized, if the minister is establishing, let’s say, a new specialized area of service that’s expanding over what is covered to municipalities that are not currently participating, how are they going to be charged? Is it a case of their coming into an existing service area, where there are established costs for that particular service and the costs of that existing service are now spread out over the expanded service area? Or will they be a new net contributor to this larger, expanded service area?
Hon. S. Anton: The goal in any specialized services agreement would be to create equity in funding. I think the member’s question is in relation to if there is an existing specialized service and a new entrant — what that would look like. I can’t generalize on what that would look like. It would have to be subject to an agreement at that time, always keeping in mind the goal of equity in funding between the partners in the specialized service.
M. Farnworth: So it would be a negotiation with equity as the underlying principle. I know one of the critiques that is often made is this. Let’s say an independent police force — we’ll use IHIT again — that is outside of IHIT goes: “Well, we have so few murders in our community that, really, if we become part of it, we’re actually subsidizing these other high-crime areas. Therefore, that’s not fair to us.” That’s the critique that’s levelled at it.
Are those the kinds of things that are taken into consideration when these decisions are made? And as I said, are they done by negotiation?
Hon. S. Anton: Yes, I’m certainly familiar with the issue that the member is raising. I think the specific question is: if there are a number of municipalities, eight, involved and a ninth wants to come in, what would the agreement around that new municipality look like?
There would have to be an agreement entered into at that time with a costing formula. As to the principles of the formula, those are contained in…. Subsection 4.02(3)(d) sets out the criteria, rules, methods and formulas by which the proposed service provider is to determine the costs of providing the services and allocate those costs as applicable.
M. Farnworth: The key point I want to get on the record is that it’s not going to be something that is imposed but, rather, would be achieved through negotiation. That is the minister’s intent when these kinds of expansions or bringing in of municipalities or creation of new services take place. That’s the one issue.
Then, in terms of…. Again, it comes back to this being enabling legislation, so I’ll raise it at this particular point. The member for West Vancouver–Capilano and others have raised the issue of…. It’s always preferable to get agreement through negotiation as opposed to using the heavy hand of imposition, which section 10 certainly gives the ministry a great deal of power to do.
In terms of trying to achieve the goal of greater integration and regionalization of specialized teams, is the ministry considering the use of financial incentives to accomplish the ministry goals? Are they considering using financial incentives to bring local governments, for example, into certain specialized areas? If so, do they have any criteria that they’re thinking that would be in place to do that?
Hon. S. Anton: The question was: would costs be achieved through negotiation generally? That is the intent. That’s the goal, but it’s not always perfect. I go back to PRIME as an example of where some parties were more enthusiastic than others, and some came along more…. But at the end of the day, it was legislation, and it required it of every police force in British Columbia.
The second question was around financial incentives. There is no specific plan for financial incentives, but I will observe that we do spend $70 million a year right now on the provincial contribution to the specialized units in British Columbia. I’ll give some examples of those — the CFSEU, Combined Forces Special Enforcement Unit; the ISPOT, the integrated sexual predator observation team; and the real-time intelligence unit. So there are groups where provincial funding does bolster the funding which is received from other participants in those specialized units.
M. Farnworth: If the province determined there is a need for a new specialized service and they felt it important that that specialized service be in place, would the province then come to the table with new resources to help local government? Or would the province say: “We believe there needs to be a new specialized service in place. We’re going to mandate that specialized service in place, but you, local government, will pick up the costs”?
Hon. S. Anton: The answer is that it depends. There are very significant provincial contributions right now to specialized units. But would there always be a provincial contribution to every specialized unit? I would not be able to make that commitment right now, because it would depend on the circumstances of the specialized unit and all the surrounding circumstances of what was going on right at that time.
M. Farnworth: No, I understand the contributions that the province makes to specialized units. The point I’m making is that in a new specialized unit for, let’s say, something that’s not there at the current time that the province determines…. As we’ve talked about in our discussion, what was a requirement for a specialized unit, let’s say, ten or 15 years ago….
[ Page 5574 ]
Cybercrime is probably the obvious one on that. We didn’t realize exactly the nature of that back then because it was just emerging. Now it is something new and different and significant.
I’m just saying that if something were to emerge and the province determined, “You know what? We need to have a specialized unit in this, and municipalities, you’re going to be part of it,” would the province be assuming costs for that?
What I would like is a commitment from the minister that they’re not going to bring in a new specialized service and say, “Oh, we are implementing this. We’ve decided it’s important, but by the way, local government, you’re going to be picking up all the costs.”
Hon. S. Anton: There is such a variety in funding models for specialized services, ranging all the way from CFSEU, where the funding is provincial and federal, all the way down to, for instance, a domestic violence team, which generally will be funded by the local municipalities.
To give an example of domestic violence teams in this area, southern Vancouver Island, and in fact in domestic violence teams around the province, there is provincial contribution to those teams, but it’s actually generally not to the policing side, or not always to the policing side. It’s really to support the community social workers who partner with the police in those domestic violence units.
Again, as I said a moment ago, it is a case-by-case basis on these things, and it’s not possible to generalize as to funding.
M. Farnworth: Then I’ll ask the minister the question this way. If in the future the province decides there is a need for an additional specialized service team, one that’s probably more primarily provincewide as opposed to being local to a particular municipality, I’d be looking for a commitment from the minister, in terms of deciding, “Okay, we want this established,” that there would be discussion and consultation with local government as to how the costs of that unit are going to be borne — whether they are borne entirely by local government or by the province or by a combination of both. There would not be an arbitrary decision, but rather, there would be a consultation around that.
Hon. S. Anton: The answer is yes, there would always be discussion and consultation as to how the new cost would be borne.
V. Huntington: In section (1)(a) it says: “in the case of specialized services to be provided other than by the government of British Columbia, a government, government agent, municipality, entity or person….” Could the minister discuss with us what the ministry has in mind when it suggests an entity other than one of those prescribed in the bill? What are they thinking of in terms of a group, an entity, a being that could provide the services?
Hon. S. Anton: Section 4.01(1)(a)(i), and I think that’s the section that the member for Delta South is referring to, talks about who might be the provider of a specialized service.
That’s set out more in 4.02(2), where it says, “The minister may enter into an agreement or make an arrangement respecting specialized policing and law enforcement with any of the following:" the government of Canada, the government of a province or an agent thereof, a municipality, an “entity on behalf of which a designated policing unit or designated law enforcement unit is established.”
The Organized Crime Agency of British Columbia, for example, would be that form of entity.
V. Huntington: It’s just that my curiosity was piqued when I realized that “entity” is defined in the definitions of the Police Act and covers a municipality, a regional district, a government corporation or any other prescribed entity, which I’m assuming falls in the minister’s comments.
The bill so specifically says “other than by” any of those things. I just wondered what the government had in mind, if anything at all.
Hon. S. Anton: The goal of the section is to give flexibility as to who the specialized service provider would be.
V. Huntington: Flexibility of this nature is interesting, specifically when they are so defined otherwise in the act.
I notice there was a discussion about whether or not the agreement itself will be subject to public input at all. The minister said not likely, or no.
I notice the agreement itself is not made public until ten days after the regulations have been completed. How long does the minister anticipate the time period from the finalization of the agreement to the finalization of the regulations to be?
During that entire period — i.e., the negotiation and consultation on the agreement to the point at which it becomes public — is that entire discussion confidential?
Hon. S. Anton: In order to get to cabinet, there needs to be an agreement, and that agreement, as we discussed earlier, is developed in consultation with local communities, local police boards, local mayors and council.
V. Huntington: First, the question I asked was whether from the beginning to the end — until the agreement is made public — that whole, entire discussion is confidential and whether the public will know that there is a special service provider being discussed. If the minister could answer that.
[ Page 5575 ]
Then I could also add: will the regulations be made public at the same time the agreement is public?
Hon. S. Anton: The consultations, as to the agreement, are generally not confidential. However, as in all aspects of policing, there may be some aspects to those agreements which are confidential. There may be public safety concerns and so on that need to be kept confidential. Generally, these will be discussions between municipalities and police services and government. Generally, they’re not confidential. I suppose, as I said, some aspects of them may be in camera, but generally, people will be well aware of the conversations that are underway.
As to when the regulations and the agreement become public, that will be at the same time, and that will be ten days after the regulation is passed.
Section 9 approved.
On section 10.
M. Farnworth: I’d just like the minister to explain section 10 because it appears, when you read it, to basically confirm what was already in section 9 — saying that you must abide by section 9. This really is the hammer section in terms of allowing the minister to do all kinds of….
This is where, if you were to say to the local government: “You know what? We’ve tried, and we think that there’s been enough consultation, and we are saying that you are now in this particular service or this particular service area.” This is where this happens. Is my assessment of that correct — in the powers that it gives the minister by the addition of this section?
[R. Chouhan in the chair.]
Hon. S. Anton: Section 15 sets out the duties of a municipality of more than 5,000 persons to bear the expenses to maintain law and order. The new section 15(1.1) clarifies that the duties of the municipality include the duty to pay for specialized services. So it’s not….
I think we’ve already gone through when you would need to pay and so on. What this is just saying is that if you’re over 5,000 people, you pay up accordingly.
M. Farnworth: I appreciate the minister’s comments on this particular section. In essence, what it does…. It says that if you had any doubts in the previous section about what your roles and responsibility and the costs are, section 10 in this makes it clear — doubly so.
Again, the point I would stress to the minister at this particular point in the discussion that we’ve been having…. The minister said she wants to see greater integration and greater regionalization of specialized services and special service areas. The minister has stated that this is out of the Oppal report, and we have disagreed on that definition or that sense of it being out of the report.
But the point I want to make to the minister is really simple. You can achieve a lot more by cooperation and discussion than you can by imposing from top down. This section and the changes in this bill give the minister and the government considerable powers enabled to come top down and say: “Thou shalt.”
What I would like to hear from the minister, as we get to this section and the end of these sections, is that the key guiding principle in this legislation is going to be consultation with local government, consultation with the public — a sense that changes that are made in public view and that are transparent to people are much better than policy being made behind closed doors in cabinet by regulation so that people don’t understand why and how something is going on. I think that is crucial, and I would like the minister’s response to that.
Hon. S. Anton: I think in the context of section 10, the member is asking a slightly broader question.
I’ll just to go back to basic principles — that I, as minister, am responsible for adequate and effective policing in British Columbia and, through me, government is responsible for that. To repeat, we have built policing in British Columbia based on consultation.
We will continue to do so, but recognizing always that there are challenges. There are new forms of crime — Internet crime being a good example of something that wasn’t around not too long ago, gang crimes and so on.
At the end of the day, government is responsible for ensuring that there is adequate policing in the province. That’s what the intent of these specialized sections is.
And this last piece, as it were, here in section 15 — just spelling out that once all those other pieces are in place, yes indeed, the municipality has to pay the bill. That is indeed the case.
Sections 10 and 11 approved.
On section 12.
M. Farnworth: Can the minister explain exactly what this is? Is this a housekeeping change, or is there a substantive change?
Hon. S. Anton: Yes, this is housekeeping. If the member wants more, we’ll have to stand down for a moment while I get people in here, but I’m told that this is straight-up housekeeping. It just depends whether the member is happy with that answer or not.
M. Farnworth: Yeah, that’s fine.
Section 12 approved.
[ Page 5576 ]
The Chair: The committee will recess until the minister arrives.
The committee recessed from 2:40 p.m. to 2:43 p.m.
[R. Chouhan in the chair.]
On section 13.
B. Ralston: I just wanted to confirm what the explanatory note says — that this is a routine housekeeping amendment to remove an expired provision.
Hon. R. Coleman: Yeah, it’s a housekeeping amendment to remove an expired provision.
Section 13 approved.
On section 14.
B. Ralston: The intent of this section is to remove a prohibition that prevents municipalities from “setting rates or charging fees by means of a franchise agreement under section 22 of the Community Charter.” That particular section gives a council the power to enter into an agreement which grants an exclusive right, and there are a number of headings, but (d) is “gas, electrical or other energy supply system.”
Can the minister explain what the term “franchise agreement” means in this context?
Hon. R. Coleman: The Community Charter allows a municipality to enter into a franchise agreement with a natural gas utility provider. Franchise agreements are also called operating agreements. It allows the local distribution utility the right to operate within a municipality’s roadways and typically includes a fee negotiated with the utility for it to obtain the franchise.
The fee may be in the form of a rate, typically at 3 percent, or a one-time fee or annual fee. The collection of fees is a mean for municipalities to secure compensation for the presence of the utility system within the municipality.
Under section (5) of the Vancouver Island Natural Gas Pipeline Act municipalities within the Vancouver Island pipeline service area are unable to negotiate franchise fees within operating agreements. This was put in place originally to make gas prices on the Vancouver Island system competitive and is no longer needed with the adoption of common natural gas rates for FortisBC Energy Inc. — so the customers of Vancouver Island and the Sunshine Coast.
Repealing section 7(5) will facilitate the establishment of operating agreements between the local distribution utility and 16 municipalities currently without operating agreements and allow these municipalities to charge the franchise fees other municipalities are allowed to do today.
B. Ralston: I thank the minister for the answer. I have been briefed on this section, but I just want to ask a few questions so that it’s clear for the record what’s being talked about.
These 16 municipalities that have operating agreements with the natural gas utility…. I think typically, except in two cases, it’s Fortis. They will enter into negotiations with the…?
I guess my question is: what’s the process, then, assuming that this provision passes? What will be the process by which these franchise fees or increases to rates will come about?
Hon. R. Coleman: Today there are 16 municipalities on Vancouver Island who are currently without operating agreements with regards to the natural gas pipeline that serves their communities. That was because of the way this act, the Vancouver Island Natural Gas Pipeline Act, eliminated that ability for them to do so.
Basically, really, what it comes down to is that it’s an operating agreement between the municipality and the local distribution utility. Those 16 municipalities, when this act passes, will currently…. Although they are without an operating agreement or franchise agreement, it will allow them to start charging municipalities and negotiate with the utility.
B. Ralston: There is in the material a note that describes these fees as typically 3 percent of the utility bill. This section is obviously not setting that rate. What would be a reasonable expectation of natural gas consumers on Vancouver Island as to what this would cost?
I understand that Fortis is engaged in an effort to even out its rates across the province, which on Vancouver Island will result in fairly sharp declines in rates. I take it that this opportunity to charge franchise fees by the municipality will send rates up slightly, although below what they were paying previously.
Hon. R. Coleman: I think we should, first of all, not…. Well, I’ll tell you, Member, they actually come down, not go up, because there’s been a premium paid for the Vancouver Island pipeline for a while to actually pay for its capital cost, I think, at the initial phase.
I just want to correct one thing I said. This is actually 26 communities. I said 16. I have a typo in my notes. It’s 26 communities on Vancouver Island.
What they will see is their gas rates come down by 25 percent over the next three years — about 7.9 percent in year 1 and 7.9 percent in year 2 and about 8 percent in year 3. The 3 percent would come off that, so they’d still be seeing their rates come down even with the franchise fee.
B. Ralston: Now, given that there are, as the minister has just said, 26 municipalities, in order to avoid duplication in negotiations, what’s the mechanism by which the
[ Page 5577 ]
municipalities will negotiate with the utility company in order to…? Will there be a common agreement, or will there be a template agreement, or how will that proceed?
Hon. R. Coleman: There’s a standardized template for all the municipalities entered in the negotiations and discussions with the company. There could be a variation of that, because it has happened in the past where they’ve decided to take fees in a different way. But we would anticipate that they’ll probably all follow the template.
There can be slight variations to the template, but at the end of the day, once an agreement is reached between the company and the municipality, they have to go to the B.C. Utilities Commission for approval.
B. Ralston: So the Utilities Commission will assess the reasonableness of the rates that are set.
I did ask, when I was briefed, for an example of what a typical municipality might receive in terms of revenue. I think we settled on Nanaimo as an example, and the anticipated revenue. Obviously, this is not final because it’s not negotiated, and there may be individual variations, but the estimate that was given was about $570,000 annually.
I just wanted to confirm that, as a rough measure of what a municipality like Nanaimo might receive when this legislation is passed.
Hon. R. Coleman: The number we have…. We’ve basically taken from 2016 to 2019 and done an average. So for the city of Nanaimo, averaged out over that period of time, it would be $574,869 per year.
B. Ralston: Perhaps the minister can just explain further what obligations, if any, the individual municipalities have after charging this fee. Is there an obligation that falls to them to do maintenance for or on behalf of or hire contractors to do maintenance on behalf of the utility company? Or is this to invest or cost-share any capital improvements in the distribution system within their municipality? Or is it simply, as it says, a fee for operating the system within the jurisdiction of the municipality?
Hon. R. Coleman: No, there’s no requirement for them to maintain or operate any of the utility within the community. What the agreement really sets out is basically that for the right to be there and have the utility, they pay an annual fee to the municipality.
The agreements also do set out some protocols. Not protocols that cost municipalities anything, but it does set out protocols with regards to working in and around the lines, what type of backfill is necessary, what kind of load would have to be put on the road to protect the utility underneath the road, if it goes underneath the road — that sort of thing. That piece is part of the template and part of the protocol agreement, but there’s no additional cost put onto municipalities.
B. Ralston: Obviously, the municipalities are supporting this because they gain an additional source of revenue. The utilities will bear an additional cost, but I take it, from the way this will be structured, that the entire cost will be passed on to the consumer so that the individual utility will not bear any additional cost. Therefore, for that reason, they support it as well. Is that correct?
Hon. R. Coleman: Basically, what happens is the utility puts it on the bill, the 3 percent, and they flow it back to the municipality. But because you’re averaging down and changing the agreement so that it’s treating the utility the same across the entire jurisdiction, that allows you to bring down the gas price at the same time.
So basically, the companies support it. The municipalities definitely support it. We felt it was an appropriate time to do this, given the history of the particular pipeline and how long it’s been in place.
B. Ralston: In the typical franchise agreement, how frequently or infrequently would the 3 percent be adjusted? Is it an agreement with Utilities Commission approval for the 21 years? I think there’s a reference to 21 years in a typical agreement with the municipality. Or is it something that would be looked at annually? What would be the frequency of fee review?
Hon. R. Coleman: It’s for the life of the agreement, which is typically 20 to 21 years.
B. Ralston: Assuming this passes, which I’m certain it will, when would these provisions come into effect, in the sense that when could municipalities reasonably expect to receive those fees and plan for them in their budgets?
Hon. R. Coleman: The commencement of the act — which is in the next section, section 15 — would be January 1, 2015. Then they would presumably do their negotiations and discussions and take their template, or their final agreement, to the Utilities Commission sometime in 2015, and then implement from there.
B. Ralston: Presumably, they’re incented to get that done so that they can have access to that revenue stream.
The minister mentioned that this will appear on the monthly bill as a surcharge or, I suppose in the example of hydro bills, a rate rider. Is that how the average person who pays a gas bill will see this particular charge?
Hon. R. Coleman: That’s correct, hon. Member. Right now in the Interior it shows up as a franchise fee on the bill. For the consumer it would look the same way here.
My understanding is that in advance of doing this work, most of the municipalities are at the stage of having these standardized templates with slight variations,
[ Page 5578 ]
whatever they are, done so that they’d be in a place to move quickly once the legislation is passed.
Sections 14 and 15 approved.
Title approved.
Hon. R. Coleman: I move the committee rise and report the bill complete without amendment.
Motion approved.
The committee rose at 2:59 p.m.
The House resumed; Madame Speaker in the chair.
Report and
Third Reading of Bills
BILL 4 — MISCELLANEOUS STATUTES
AMENDMENT ACT (No. 2), 2014
Bill 4, Miscellaneous Statutes Amendment Act (No. 2), 2014, reported complete without amendment, read a third time and passed.
Hon. D. McRae: I call committee stage of Bill 6, intituled Liquefied Natural Gas Income Tax Act.
Committee of the Whole House
BILL 6 — LIQUEFIED NATURAL GAS
INCOME TAX ACT
The House in Committee of the Whole on Bill 6; R. Chouhan in the chair.
The committee met at 3:02 p.m.
On section 1.
Hon. M. de Jong: Why don’t I begin by introducing to the committee the able staff that are going to help us, I think, move through some pretty technical provisions — to my right, Pat Parkinson; to my left, Paul Flanagan; and Christina Dawkins on the far left.
B. Ralston: Beginning, then, on section 1, my first question is…. I’m going to have a series of questions about the definitions that are included in section 1. The first definition is “capital cost.” I’ve looked in the federal Income Tax Act and haven’t found an exact equivalent to the term “capital cost.”
Can the minister explain: is this unique to this statute, or is it unique to the provincial Income Tax Act? Or have I not understood its relationship to the Canadian Income Tax Act and the definition there?
Hon. M. de Jong: The definition in this case is somewhat tailor-made to this act, and I can expand upon that if the member wishes.
The Chair: Minister, continue.
Hon. M. de Jong: What we’re endeavouring to do here is define capital investment property in terms of the use of that property for liquefaction activities. The cost of capital property, meaning this definition, may be added to the capital investment account and deducted in computing net income, all part of that calculation process for net income.
But to the member’s first question, it is something of a unique definition tailor-made to this act.
B. Ralston: The next definition, “capital investment property,” refers to section 7, and I’ll deal with that when we come to section 7.
It says specifically it excludes the following property: “property that is described in an inventory.” The word “inventory” is not defined in section 1. Can the minister explain what is being referred to there?
Hon. M. de Jong: The first thing I need to do for the member and the committee is correct an error I have made inadvertently in describing the significance and relevance of capital cost, which I think was the member’s first question. In error, I referred to the question he is now asking, which is on capital investment property.
With respect to the first term that the member queried, the purpose behind the definition is to ensure that a cost can only be deducted once, either as a current expense or as a capital expenditure. So it can only be deducted once, either as a current expense or as a capital expenditure — and clarifies that the expenditure may be treated as capital in nature only if it has not previously been deducted in computing net operating income.
To the member’s second question, I am advised that the inclusion of the term “inventory” is meant to attract the usual definition that…. It would stand on its own, and I would refer back to the description I gave a few moments ago about the purpose behind the definition in the first place.
B. Ralston: The minister mentions the usual definition of inventory. I wonder if he could expand upon that, because this is a specific exclusion from capital investment property. Subsection (c) reads: “property that is described in an inventory.” So the reference is to the LNG facility or “intangible personal property that is used or exploited” to carry out activities at an LNG facility, but it specifically excludes this one, property described in an inventory.
I’m interested in just understanding the nature of the exclusion and the statutory purpose for which it is excluded.
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Hon. M. de Jong: Maybe if I do this a little bit by way of analogy, the point is we don’t want to, for the purposes of the various calculations that take place under the taxation legislation, have items double-counted or improperly included in things like capital cost.
If you are a car dealership, vehicles are your inventory. We wouldn’t count vehicles as representing a portion of the capital cost. In this case, perhaps, the analogous situation would be that we wouldn’t, for taxation purposes, include the cost or value of the liquefied natural gas itself in the calculation of capital cost.
B. Ralston: Subsection (d) refers to “a share.” Can the minister explain what’s meant by that?
There are a number of definitions of a share. It’s not defined in the definitions section, so can the minister explain what’s meant and what’s the purpose of having it there?
Hon. M. de Jong: It refers to a share in a corporation, and the intention is not to include a share in a corporation in the calculation of capital investment property.
B. Ralston: Subsection (e) refers to “an interest in a partnership or trust.” There is reference later in the act to the way in which partnership interests in an LNG facility will be treated. Can the minister explain why it’s excluded from this definition?
Hon. M. de Jong: The intention here, and the logic, is analogous to the previous subsection (d) dealing with shares in a corporation. The member has alluded to the subsequent sections which deal with partnerships or trusts. The act purports to pick up the proportionate share and value of those later, in other provisions. But for the purpose of defining “capital investment property” in the same way that shares in a corporation are excluded, partnership or trust interests are excluded.
B. Ralston: Looking at the definition of “closure date,” there are provisions in the act looking forward to the establishment of a facility and then the decision at some point, presumably many decades in the future, to close it. This refers to that. But the definition refers to the later of two alternates, (a) and (b), and there’s a description under each one. Can the minister explain what the difference is between subsection (a) and subsection (b)?
In the Oil and Gas Activities Act, section 41, “Certificate of restoration,” I believe, if I have the right section, imposes certain obligations on the operator at that point. The other date appears to refer to some other activity by the Legislature or the parliament outside of the regulatory process that’s governed by the Oil and Gas Commission.
I don’t know whether I’ve answered my own question. Perhaps the minister could confirm if I’m right, and if I’m wrong, I’m sure he will set me straight.
Hon. M. de Jong: I think the member has essentially described it correctly. The closure of a facility of this type attracts obligations and requirements pursuant to both provincial legislation, one of which is listed here in sub (a), and also, potentially, federal legislation, which is contemplated in the additional subsection.
The definition is intended to make clear that closure date attaches to the time at which the requirements have been met of the latter of the two, be that environmental remediation obligations that might attach or apply either provincially or federally.
B. Ralston: The next definition is “designated automobile amount.” It refers to section 7307(1)(b) of the regulations to the Canadian Income Tax Act. I have that before me. It’s described as the prescribed amount for automobile deduction limits. It seems a little out of place here, but perhaps the minister can explain why it’s there.
Hon. M. de Jong: Like many of the sections we’re dealing with, we do draw, as the member has pointed out, on federal legislation for taxation purposes, of course. Entities are able, in certain circumstances, to claim the capital cost of an automobile. That is set out in the section referred to in a federal regulation.
I’m told that the 2014 limit to avoid situations where claims are made for the value of “luxury vehicles” is $30,000 before GST, PST; that is, the 2014 limit is $30,000.
B. Ralston: The next definition, “disposition,” is described as having “the corresponding meaning to the definition of ‘dispose’ in the Interpretation Act.” That’s Interpretation Act, chapter 238, in section 29, where expressions are defined.
It’s a very expansive definition. I’ll just read it. It means “to transfer by any method and includes assign, give, sell, grant, charge, convey, bequeath, devise, lease, divest, release and agree to do any of those things.”
There is, then, a further clarification of that term. The word here is disposition, not dispose. Can the minister explain why it was felt necessary to add an independent variant of the definition for the purposes of this act?
Hon. M. de Jong: The member again is correct. This is modelled on the federal definition and is used to determine when the taxpayer disposes of a property for purposes of determining when a sale of inventory or capital investment property occurs. As I think the member may have alluded to in his question, it sets out a list of transactions considered to be dispositions for the purpose of the act.
I am advised that it does one further thing. It matches the timing of the disposition in those cases to the federal act.
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B. Ralston: Just for clarity, I was referring to the provincial Interpretation Act. That’s the definition that I gave, but the minister has referred to the federal Interpretation Act. I’d understood that it was referring to the provincial Interpretation Act, but perhaps we could just clarify that before I begin my next question.
Hon. M. de Jong: In fact, I’m reminded, both statements are correct. It does refer to and is intended to correspond to the provincial Interpretation Act but is then modified slightly to ensure that it is modelled and similar to the federal definition.
B. Ralston: The disposition. It sets out, in addition to the definition that I’ve referred to, what is intended to be included, but then there are exclusions. I’m going to ask the minister a series of questions about the basis of or the intent of excluding subsections (d), (e) and (f).
Perhaps we can start with section (d). It excludes the transfer of property where “there is no change in the beneficial ownership,” except if the transfer…. Then there are a number of further clarifications or refinements of that term. Can the minister explain the purpose of that particular exclusion from the general definition of “disposition”?
Hon. M. de Jong: Dealing with sub (d) and the exclusion relating to trusts, I’m reminded that as we move through the act, we will come to a specific set of rules as it relates to trusts. Therefore, it was deemed necessary and appropriate to exclude the trust-related provisions from the general definition in section 1.
B. Ralston: Subsection (d) appears to contemplate situations where there is a transfer of legal ownership but the beneficial ownership continues to be the same person or partnership. Would that be a reasonable summary of (i), (ii) and (iii) in this section?
Hon. M. de Jong: I believe that’s correct.
B. Ralston: The next exception refers to a “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.” It would seem that that would be a disposition in the very expansive definition that was set out in the Interpretation Act. I’m wondering why this is excluded. What purpose does it serve?
Hon. M. de Jong: We are just confirming, in response to the member’s question. The rationale, though, for the inclusion of subsection (e), I believe, relates to securing consistency with the federal Income Tax Act. We are checking on that as we speak.
B. Ralston: I was unsure whether we were going to simply await the answer, but I can continue.
The next exclusion is subsection (f), where this transfer “to a trust as a consequence of which there is no change in the beneficial ownership….” This seems to be a variant of (d) above, which we’ve just referred to, where there’s a legal transfer of title but no change in the beneficial ownership except that it’s refined to some specific circumstances that are set out in (i), (ii) and (iii). Is that correct?
Hon. M. de Jong: I believe that is correct also. As I mentioned, when we get to part 7 of the bill, we’ll deal specifically with the manner in which trust and trust-like relationships are being dealt with.
B. Ralston: The next two, I think, are self-evident.
“Feedstock pipeline” appears to be a term of art that’s peculiar to the natural gas industry. Can the minister explain briefly what is meant by a feedstock pipeline? Would, for example, a given LNG facility have more than one feedstock pipeline? Or is there the feedstock pipeline, and then there are spurs to that main feedstock pipeline?
Hon. M. de Jong: The first thing I can do is confirm the accuracy of the information I gave a few moments ago around subsection (e) and the previous definition. The drafters and the intention is to ensure consistency with the federal act.
With respect to feedstock, the member has cottoned on to what I think is an important term, albeit a term of art unique to this industry. A feedstock pipeline is the part of a natural gas pipeline that starts at or near the reference point — and we’ll talk, I think, a little bit later about what a reference point is — and ends where the natural gas is delivered to the LNG facility.
That’s relevant and significant because we need to know that for calculating the cost of natural gas in instances where the gas is not acquired in an arms-length sale at the LNG facility.
The taxpayers’ cost of natural gas includes the transportation cost for delivering gas to the LNG facility. Transportation costs on the feedstock pipeline are an eligible inclusion in calculating the cost of natural gas to the taxpayer. So that’s what’s contemplated.
I haven’t answered, though, the other question that the member asked, which is: can there be more than one feedstock pipeline, or is there likely to be more than one feedstock pipeline? I don’t know the answer to that, and I’ll endeavour to find out.
Interjection.
Hon. M. de Jong: The answer — this just in — is no. It is contemplated that there would only be one feedstock pipeline to an LNG facility.
B. Ralston: I think that relates directly to the next definition, the “feedstock pipeline inlet,” which is the point at which the volume of gas, for the purposes of calculating tax on it, enters the plant.
The definition of 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.” I think there is some reference elsewhere to Spectra 1 or Spectra 2. I’m not sure at this moment.
Can the minister, then, explain that the definition of the feedstock pipeline inlet means the point at which the gas is deemed to enter the plant, for the purposes of calculating its volume, and therefore the basis for taxation?
Hon. M. de Jong: I’m going to correct, I think, one thing that the member said in posing the question. The feedstock pipeline inlet is the starting point for determining the start of the feedstock pipeline. I think that means it’s important to think of the inlet as the beginning of the feedstock pipeline and not the inlet to the LNG plant, the LNG facility itself.
B. Ralston: In practical terms, is that in the immediate vicinity of the LNG plant — by immediate, I’m thinking relative to the length of the pipeline — within a couple of kilometres of the plant? Or is it a location that would be somewhere well upstream on the pipeline?
Hon. M. de Jong: I think I understand the member’s question. It is likely to be significantly upstream. It would be incorrect to think of this as a point a kilometre or two from the LNG facility, insofar as we are contemplating LNG facilities on the west coast.
B. Ralston: Assuming that that’s the case and it’s well upstream, what happens in the case of where…? One hears that some of the proposals are that there may be proponents who combine on the ownership of a pipeline and then split, at some point, the contents, I guess, or the gas that’s being pumped through the pipeline.
So how would that work, in terms of determining where the feedstock pipeline inlet would be? Would that mean that there would be a designated feedstock pipeline inlet when the pipeline came to a fork so to speak? Or is there some other way that it would be calculated?
Hon. M. de Jong: I think the member describes a scenario that may well occur. We haven’t….
I’m reminded, though, that in addition to the feedstock pipeline inlet, the LNG facility inlet meter would exist and would be in a position to track actual gas that has travelled along the feedstock pipeline to an LNG facility.
It should be, as a result, possible to do the calculations necessary. There is a variety of them, depending on whether it is an integrated operation or there are deemed purchases and sales at the LNG facility. It should be possible to differentiate in the circumstance that the member has described.
B. Ralston: The further definition that has the word “feedstock” in it is “feedstock spur pipeline.” That definition refers to “a natural gas pipeline that delivers natural gas from a feedstock pipeline to the series of systems described in section 8 (1) (a).” That’s the section that refers to LNG plants.
One of the commentators on the bill that I read says the following: “The interpretation of the phrase ‘series of systems’ will be important in determining what infrastructure will fall within the definition of ‘LNG plant,’ thereby entitling it to be included in the taxpayer’s capital investment account.”
Since this uses the phrase “series of systems,” which is repeated in section 8, the minister may want to answer that now, or we could defer it until we get to section 8. It is apparently, according to commentators, important for the reasons that I just set out — that it will determine what’s included in the capital investment account — and that has certain implications for the ultimate amount of tax that would be payable.
Hon. M. de Jong: Again, the member has correctly identified the significance of the term “feedstock spur pipeline,” being a pipeline that moves the natural gas delivered by a feedstock pipeline into the LNG facility.
He has correctly identified another significant aspect of the definition. Insofar as the feedstock spur pipeline is the spur from the feedstock pipeline to the LNG plant, it is considered, pursuant to the definition, part of the LNG plant. The capital cost of the spur pipeline, therefore, is eligible for inclusion in the capital investment account. As the member has, again, correctly pointed out, that is relevant for a whole series of reasons.
B. Ralston: To continue with the interpretation of the phrase “series of systems,” it’s not defined in section 1, and for the reasons that this commentator points out, it’s important for determining the capital investment account.
Can the minister at this point give a definition of “series of systems”? It gives them some alternatives. Is there a definition in the federal act? I wasn’t able to find it. That may be the deficiency of my research. Or is this a term that’s unique to this legislation and, therefore, will be defined for the first time when one of these plants comes into existence? Because it’s important for the tax lawyers, I’m sure that the answer will be scrutinized. But I’m sure, equally, an answer would be appreciated.
Hon. M. de Jong: To the member: again, a reasonable question. If he looks at the definition term “feedstock spur pipeline” and the reference to a “series of systems,”
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it’s the next phrase that probably helps answer the question: “described in subsection 8 (1) (a).” If we go to subsection 8(1)(a), there is the reference to what is meant by the series of systems. I won’t read them. But they are there and provide guidance as to what is captured by the definition of “feedstock spur pipeline.”
B. Ralston: Well, there is a definition in section 8. This is the first opportunity to ask some questions about the term “series of systems.” I’ll come back to that when we get to section 8 because I think it deserves a bit more exploration.
I want to move now to the next definition, which is the definition of “financial incentive.” It’s used in a number of sections — 31, 38, 60, 61, 85, 90, 108, 112 and 118. I haven’t been able to find a definition or discussion of financial incentive in a comparable tax act.
I guess there are a couple of questions that maybe go together. Is it a term that’s unique to this act? And is it a similar concept to the taxable benefit under the federal Income Tax Act?
Hon. M. de Jong: The term, I’m advised, is unique to this act. The concept is not and is reflective and similar to the federal act. It is intended to describe the types of incentives that reduce the cost to the taxpayer of current expenses or capital expenditures. The point is that these amounts are taken into account to reduce the deductions or costs that the taxpayer may claim in computing the taxpayer’s net income and net operating income. So concept matches what exists federally; the term is specific to this act.
B. Ralston: Can the minister specify the section of the federal act or the exact term that it’s analogous to in the federal act?
Hon. M. de Jong: If the committee will give me a moment, I’ll endeavour to secure the section if I can; otherwise, I’ll seek it in due course.
Oh, I have it.
B. Ralston: That was quick.
Hon. M. de Jong: I’m advised that the concept that I’ve described here and captured by the definition of “financial incentive” is dealt with in the federal act at section 12(1)(x).
B. Ralston: The reference there in the headline is inducement, reimbursement, etc., in 12(1)(x). It’s quite dense, and I don’t have the opportunity to read it here. But it’s a term that occurs in other sections so perhaps, if necessary, we can revisit it.
I wanted to understand the concept a bit better. Is it meant to apply to a situation where an LNG company, for example, buys a piece of capital equipment but gets a large rebate? Would that be considered a financial incentive?
Hon. M. de Jong: I should ask the member: a public or governmental rebate or a rebate from the private sector supplier?
B. Ralston: In this first example, a rebate from a private sector supplier.
Hon. M. de Jong: This section is not intended to capture that circumstance.
B. Ralston: Then let me turn to what the minister alluded to in his earlier answer, or his earlier question: if the LNG company receives a subsidy from the federal government. For example, if the federal government granted the LNG alliance its wish, which is an accelerated capital cost depreciation, would this be considered a financial incentive?
Hon. M. de Jong: In the case of a reduction in tax, the answer would be no. If the federal government cut a cheque to a taxpayer, the answer is yes.
B. Ralston: Can the minister give an example of a financial incentive that would be counted as other income — the references in the section to other income?
Hon. M. de Jong: We’ve been sort of struggling with the difference between the capital side and the income side of the equation. I think the member’s question related to the income side. A training subsidy or a training tax subsidy would probably qualify on the income side.
B. Ralston: Can the minister explain, then: what is the purpose of this definition? Clearly, it’s dealt with in other sections, and there appears to be an attempt to exclude those payments or amounts that are classified as financial incentives from certain calculations of tax. Can the minister explain what the purpose is behind this definition?
Hon. M. de Jong: I think the question related to the overall rationale. The short answer, I believe, is because we felt it was necessary to have provisions contained within the LNG Income Tax Act that were analogous to or similar to provisions that exist in the federal legislation — having a construct for how to deal with the various items contained under the definition of “financial incentive.”
B. Ralston: It would appear, looking down to later sections, that financial incentives are meant to be included in other income under section 31. They’re also meant
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to be included in the capital investment account under section 60.
By the definition, they are meant to be included in both, other than in the circumstance where the taxpayer is at the tier 1 tax level.
Wouldn’t these two definitions — or that method of including them in the two sections — cancel each other out?
Hon. M. de Jong: I hope I’m capturing the essence of the member’s question.
The way the sections are intended to work together is, ultimately, to ensure that a taxpayer who is in receipt of a financial incentive is not receiving a double benefit.
It is either captured on the income side or the capital side of the equation. That’s the rationale for the language contained here, coupled with the other sections, a couple of which the member has already mentioned.
B. Ralston: The definition also in sub (b) refers “to the extent that the amount may not reasonably be considered to be a payment made in respect of the acquisition…in the taxpayer, the taxpayer’s business or the taxpayer’s property.”
That would seem to contemplate a fairly expansive definition. Is that meant to capture non-legal payments that might be characterized as incentives, such as bribes or things like that? Of course, the Income Tax Act is fairly non-judgmental when it comes to examining sources of income.
Hon. M. de Jong: I’m advised as follows. The purpose behind sub (b) is to make clear that in circumstances where the taxpayer has received payment and the payer has received value back — and it may be for inventory; it may be for a capital item — the subsection is designed to make clear that that is not considered an inducement, refund or reimbursement within the meaning of the definition of “financial incentive.” That’s the rationale behind the inclusion of sub (b).
B. Ralston: Just looking then at (a) and (b) in this definition, there is an “and” joining the two. I’m wondering, then, if a grant is received, and it’s directed to the purposes set out in sub (b), arguably is it then not a financial incentive?
I’m wondering where the payment or the inducement or the refund or the reimbursement or the assistance crosses the line from being a legitimate payment as described in (b) to being a financial incentive as described in (a)?
Hon. M. de Jong: I think the answer is: in circumstances where there is an absence of value flowing to the payer. The member referred to the grant. That, it strikes me, by definition excludes the flowing of value back to the payer. That would be, on the surface at least, from my perspective, a determinant of what differentiates a transaction that’s captured by sub (a) or sub (b).
B. Ralston: The minister has referred to value flowing back to the payer. Obviously, if a grant is made, there may be certain benefits that are at least partially economic in the sense that to give a grant to an activity may stimulate, arguably, other economic activity in the region or the area.
Is that meant to then disqualify any of these entities from receiving grants or assistance and having it characterized as other than income?
Hon. M. de Jong: This is not to be critical. I’m not sure I understood fully the question, so I may offer a response that’s not helpful at all to the member. Maybe he could take another stab at it, and I’ll listen very carefully.
B. Ralston: Well, let me just try and put it another way, because I’m grappling to understand this and the purpose of this. There’s a definition with “inducement” here, and it’s fairly broadly written. Would a tax subsidy or incentives…? Do they count as…? Are they considered inducements such that they fall within this definition, I suppose, of “financial incentive”?
[D. Horne in the chair.]
Hon. M. de Jong: Yes, in that case…. That’s helpful. I can respond, I think, specifically. The section would operate in a way that that kind of a benefit flowing to the taxpayer would be captured.
B. Ralston: The next definition is a definition of “financing charge.” Again, it’s a fairly broad definition. Is this one that’s derived from the federal act, or is it something that’s unique to this act?
Hon. M. de Jong: Once again I am reminded and can advise the committee that the concepts enshrined in this definition of “financing charge” are taken from and consistent with that which appears in the federal Income Tax Act. I don’t, however, want to convey to the committee that there is a definition within the federal Income Tax Act that mirrors this.
It is conceptually consistent, but I am told that the federal income tax provisions contain reference to a whole broad set of variants and different circumstances. But the principles enshrined here are consistent, I am advised, with what is in the federal Income Tax Act.
B. Ralston: Perhaps, then, the minister can explain the drafting strategy, or why it has proposed not simply to adopt the federal definition and to create a new, I
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suppose, more succinct one. Other than accessibility, is there some purpose beyond that in not simply adopting the federal definition, given that that would be something that would have been interpreted, presumably, and be a known commodity in terms of calculating what a financing charge might be?
Hon. M. de Jong: It’s a two-part answer. One relates to ensuring clarity, and the second part of the answer relates to the intent behind which this has relevance. Unlike federal circumstance, this act, read in its entirety, makes it clear that no amount in respect of a financing charge is deductible in computing net income — that operating income or net operating loss — under the act.
The definition of financing charge sets out all of the amounts that are considered to be non-deductible financing charges. Instead, taxpayers will be allowed to deduct an amount in respect of an investment allowance to reflect the cost of capital. But it is a combination of clarity and intent as to how financing charges will be dealt with under the LNG Income Tax Act.
B. Ralston: Ordinarily, financing charges are deductible against income in most business circumstances. The minister has referred to the investment income account, subject to what the prescribed rate is, which is going to be imposed by regulation. There will be a stipulated amount that will be calculated each year. Is that the reason why this was excluded as a deduction?
It is, I think, an unusual step, so perhaps the minister can explain the thinking of the drafters in excluding it.
Hon. M. de Jong: Well, it was certainly a specific decision and policy choice that we have made and set out in the provisions of the act. In part, I would say, to disincent certain behaviour in these circumstances, taxpayers will be treated equitably on the basis of the mechanism that has been developed. So it is a purposeful policy choice that has been made in developing the taxation regime.
B. Ralston: The financing charge includes “(a) an amount paid or payable by the taxpayer as or instead of interest,” but goes on to add a number of other charges that would be ordinarily incurred in the course, I think, of financing through various means.
One of the commentators’ notes that I discovered notes that “interest expense is generally deductible under the federal Income Tax Act.” The reference is to the B.C. Mineral Tax Act, which “allows for an increase to the capital investment account by an amount of imputed interest. In contrast, the LNG tax will not allow any recognition of interest expense or any other ‘financing charge’ in the computation of income or the addition of notional interest expense to the capital investment account.”
First of all, is that an accurate statement of the intention? Secondly, can the minister explain why the choice was made not to model the B.C. Mineral Tax Act?
Hon. M. de Jong: I was listening carefully to the member reading from the commentator, as he described it. I think that is correct. If the member wants to send the quotation over, I’ll happily review it. But I think, essentially, the quotation correctly described the circumstance created here.
With respect to the second part of his observation/question — a purposeful decision by the government, in the context of this legislation, not to allow a dollar-for-dollar interest cost deduction and, instead, opt for the investment allowance.
B. Ralston: Well, I don’t want to make it a mystery. What I was reading from was described as Blakes Bulletin. It’s a law firm, and it’s a commentary on the draft legislation to implement the LNG tax dated November 3, 2014. That’s part of their commentary on it. I think that’s something that can be easily retrieved. That’s their comment on that.
One commentator has suggested that the choice is to not favour whether an LNG project is financed by debt or equity, and that’s the reason for not permitting the deductibility of interest, and that the investment account is the mechanism by which an even-handed approach to whatever financing method is undertaken would be achieved. Is that a fair comment in terms of the legislative purpose?
Hon. M. de Jong: That was part of the consideration.
B. Ralston: The definition of “fiscal period” I think is straightforward. I wanted to move to the definition of “hedging transaction.”
There’s a definition that describes an agreement, a hedging agreement, which is related to an underlying variable that’s not in the control of the party to an agreement. But then after (iii) it begins a distinction, “other than a transaction or series of transactions,” and it goes on.
Generally, the exceptions are always more intriguing than the principle definition. So can the minister explain, first of all, generally what a hedging transaction means and then, secondly, what the exclusion refers to and why?
Hon. M. de Jong: This is meant to capture transactions, or a series of transactions, that are designed to reduce a risk of loss or profit.
Then beyond that, other than an agreement held for the purpose of, and until the receipt of a good or a service by the taxpayer or for the delivery of a good or a service to the taxpayer in respect of liquefaction activities. The
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other kinds of agreements that are contemplated here — acquisition or disposition of foreign currency — where we’ve also, obviously, included a prescribed transaction….
The point of the section is to make it clear that no amount in respect of a hedging transaction is to be included or deducted in computing net income, net operating income or net operating loss under the act. That is the grand purpose behind this section — to make it clear that hedging transactions aren’t to be included for those purposes. But I think that the member had a second or perhaps more fundamental question, and I’ll await his response.
B. Ralston: No, I think the purpose is relatively straightforward, and it’s meant to be excluded somewhat — well, precisely — analogously to financing charges, including interest, but I’m wondering what the exception is that begins after (iii). It refers to “other than a transaction or series of transactions,” an agreement may be entered into and held for the purpose, until receipt or delivery.
It seems like a description of an ordinary contract where you pay some money and then you receive a good or a service down the road. It doesn’t seem to be anything more complicated than that, but perhaps the minister can confirm whether that’s accurate or add his own gloss to that.
Hon. M. de Jong: The practical basis for which sub (iv) is included, I am advised, is to ensure that there is a mechanism by which taxpayers can enter into a fixed long-term contract for both the purchase of natural gas coming in one end of the LNG facility and the sale of liquefied natural gas going out the other end. The drafters wanted it to be clear that that was a contractual arrangement that they were permitted to enter into.
B. Ralston: The other question I had was related to…. I think I know the answer to this, but I just want it to be for clarity. It refers at the end to a prescribed transaction or series of transactions which could reasonably have been said to be “undertaken for the purpose of reducing or eliminating a taxpayer’s risk of loss and opportunity for gain or profit….” This doesn’t refer to ordinary insurance, I take it, then, does it?
Hon. M. de Jong: Basic insurance contracts and coverage would not be captured by this. However, I am told that there is a trade in hedging insurance costs and transactions. I’ve never participated or am that familiar with the mechanism by which that occurs but am advised that it does. Basic insurance packages and coverage, though, would not be captured by this. A more sophisticated hedging scheme around insurance would.
B. Ralston: I think that’s reasonably clear. Presumably, given the reported value of some of the investments that are being made in these plants, the insurance premium might very well be a substantial fee, so there might be some effort to seek to reduce it by some financial engineering. But I understand the minister’s comment.
I think the definition of “improvements” is a fairly time-honoured one, and I don’t have a question there. The definition of “land,” perhaps counterintuitively, also includes land covered by water. I take it that’s so that the waterfront area of an LNG plant may in fact have the liquefaction facility floating on a barge or some other structure, and that’s intended to cover that possibility. I think that’s what’s intended. Perhaps the minister could just confirm that.
Hon. M. de Jong: That’s correct. And I’m reminded of circumstances where, for example, a jetty has been constructed as part of the facility.
B. Ralston: This next definition I think is more at the heart of the bill than many others. The term is “liquefaction activities,” and it appears to have been written very broadly. I have a number of questions about that particular definition.
The term in sub (a)(ii), “a right to acquire….” Given that that may be a contract with someone who is a non-resident, is it intended to extend the definition of liquefaction activities to a non-resident who has contractually a right to acquire LNG?
Hon. M. de Jong: It is, in the circumstances enumerated or enunciated in the subsection, for a facility located within B.C.
B. Ralston: One of the commentators notes: “The bill does not explicitly require the taxpayer to be a resident of Canada or to have a permanent establishment in the province of British Columbia to be liable to pay the LNG tax.” The particular example was related to this subsection and a non-resident, typically offshore.
Can the minister confirm, or not, that comment — that it doesn’t explicitly require the taxpayer to be a resident of Canada or to have a permanent establishment in the province of B.C. to be liable to pay the tax?
Hon. M. de Jong: That is correct.
B. Ralston: Some of the liquefaction activities are fairly broad, as I’ve said. One of them, in (d), is “disposing of electrical power generated at the LNG facility.” There’s also the sale of “intangible personal property” — which could include technology or consulting services — and the right to receive income derived from any of the above. Then in subsection (g) it refers to “activities that support construction, administration, operations and maintenance of the LNG plant.”
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Does (g) mean that profits earned by subcontractors are liable to pay the LNG tax? Would they have to file the special LNG income return or not?
Hon. M. de Jong: Can the member specify subcontractors engaged in what activity? I think that’s relevant to the answer.
B. Ralston: I’m reading from (g), “in relation to a person who carries out one or more of the activities described in paragraphs (a) to (f) of this definition.” So acquiring, owning and, particularly, I would say, the most relevant would be: “(c) operating all or part of an LNG facility.” So a person who carries out those “activities that support the construction, administration, operations and maintenance of the LNG plant.”
This would appear to describe a fairly broad ambit of potential contractors who would be part of ongoing administration, operations, maintenance. I think there was an example in the ministry’s explanatory note — for example, adjacent to an LNG plant, if you had a parking lot. That seems intuitively understandable. But I’m just wondering how broad this definition is.
It would appear, if linking “(c) operating all or part of an LNG facility” and a person who carries out that activity by supporting the activities described in (g), that would be fairly broad and cover a number of subcontractors, potentially. I’m just wondering: is that the intention? What would be their obligation to pay the tax?
Hon. M. de Jong: I think I understood the member’s question. I was thinking that he was probably referring to how far down the ladder the tax applies insofar as someone that is subcontracted to participate in the construction of the facility.
The tax would not apply in that case because the agency, the subcontractor…. Unless the subcontractor in that case met one of the earlier criteria — acquired or owned liquefied natural gas at the LNG facility — the tax would not apply to the subcontractor.
That’s the differentiation that would operate to ensure that the kind of subcontractor that I think that the member was referring to would not be liable for payment of the tax.
B. Ralston: The minister referred to construction, which I think would be a different activity. The reference in (c) is to “operating all or part of an LNG facility,” so that would be the ongoing operation. Then, (g) refers to a person who carries out one or more activities described in (a) to (f), so that would include (c), obviously.
So it’s a person who provides activities that are part of operating all or part of an LNG facility, and then it’s refined to the activities that support the construction — not only construction but administration, operations and maintenance of the plant and that are not otherwise described in paragraphs (a) to (f). It’s even broader than what’s set out in (c) for, I guess, greater clarity.
That person, or that taxpayer, would appear to be, then, engaged in liquefaction activities. In contemporary business, and it’s pretty standard, there are lots of subcontractors who may have a role in providing services for the ongoing operation of a huge industrial facility.
My reading of it is that these businesses, these taxpayers, would be liable to pay the tax because their activity is included in the definition of liquefaction activities.
Hon. M. de Jong: I was thinking maybe the best way to get to the root of this is anecdotally or through some practical examples. The example we came up with here is if the owner/operator of an LNG facility is operating the cafeteria or the food service, then that clearly is going to be captured.
If, however, a company is brought in for no other purpose than to operate the cafeteria within that facility, derives income from the operation of that facility within the LNG facility, they would not attract liability under the tax or be responsible for payment of the tax.
B. Ralston: Well, maybe it’s just me and I’m a bit slow, but I don’t quite understand why that wouldn’t be the case. The activity is defined as “operating all or part of an LNG facility,” and then it’s very broadly defined as part of the “operations and maintenance of the LNG plant.” Why wouldn’t that…? I’m not understanding why that would not be included as liquefaction activity.
Hon. M. de Jong: I believe we’ve stumbled on the answer that may help the member. For (g) to apply — the member has sub (g) in front of him — the individual corporation has to be captured by one of (a) to (f). In the example I gave, the argument would be that the operator of the cafeteria, if that’s all they’re doing, wouldn’t be captured by any of subs (a) to (f).
B. Ralston: Looking, under the definition of “liquefaction activities,” at sub (f), “acquiring, owning or disposing of a right to receive income” from any one of the activities, how far afield is that intended to go? For example, a non-resident third-party marketer of LNG — would that be included in this definition and, therefore, subject to the tax?
Hon. M. de Jong: I think what the member was perhaps driving at or alluding to was whether or not subsection (f) would operate to capture a marketing agent. Again, I think the answer is that if that agent were captured by one of subs (a) through (e), probably it would. And if they were not captured by any of the activities described in subs (a) through (e), then it would not.
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B. Ralston: I’m advised that the word “derived,” which is used in this section, in the context of tax legislation has been interpreted by the Supreme Court of Canada as having a broader meaning than “received,” such as the equivalent of “arising or accruing,” and is not limited to income arising or accruing from the operation in question by a particular taxpayer. Does the minister agree with that definition of “derived” which is expressly in this subsection (f)?
Hon. M. de Jong: I am advised that I can advise the committee that the term was chosen by drafters purposely and having regard for the judicial consideration that has been afforded the term in the courts and the highest court.
B. Ralston: An example is offered here which I’m going to pose in the form of a question. “For example, if a third party loans” — I’m sure they meant lends — “money to an LNG project, are the payments received by the lender from the operating income of the LNG facility subject to the LNG tax on the basis that the lender is in receipt of ‘income derived from the operation of an LNG facility’?” And that’s the definition that’s set out in section (f).
Hon. M. de Jong: Again, I think the answer is that in a circumstance where that occurred and the recipient was engaged in one of the activities set out in subsections (a) through (e), the answer would be yes. If they were not engaged in one of those activities, the answer would be no.
B. Ralston: The commentator goes on to say, following that example: “While such a broad interpretation seems unlikely — especially considering the interpretation of similar issues under the Income Tax Act Canada, the federal act — the bill’s drafters clearly intended a broad application of the LNG tax. They have even indicated that it may apply to income derived from operating a parking lot at the LNG facility.”
This is, I suppose, the minister’s opportunity to provide clarity to those who would engage in professional tax planning, either as lawyers or accountants or a combination of the two. The suggestion is that such a broad interpretation is unlikely, and it gives the minister an opportunity to resile from the position he just took if he so chooses.
Hon. M. de Jong: I have grown cautious about affording advice from any location this far removed from the practice of law. I would say this though. If you are engaged in any of the activities contemplated in sub (a) through (e), it would be well worth your while to seek professional advice around the degree to which, if at all, the provisions of the LNG Income Tax Act apply.
B. Ralston: Just to return again to the example that we spoke of before, the operation of a cafeteria within the LNG plant. The example — it’s referred to again, and what I’d referred to earlier — is: the operation of a parking lot in an LNG plant may be captured by the tax.
What would be the conceptual distinction, if there is one, between operating a cafeteria in the LNG plant and operating a parking lot adjacent to it?
Hon. M. de Jong: I don’t think I would make a distinction. I think the example that the member may have been provided with was where the operator of an LNG facility receives income from operating a parking lot at an LNG facility.
They’re undertaking an activity in support of the operation of the LNG facility and therefore undertaking a liquefaction activity, differentiated, I think, from the company that comes in, has no connection, isn’t engaged in any of the activities described in sub (a) through (e) and has merely been subcontracted to operate the parking lot. That distinction, I think, would hold in both examples.
B. Ralston: Forgive me, then, but isn’t that a distinction in form rather than in substance, whereby contractually arranging…? In a certain way, one avoids the tax as opposed to being obliged to pay it? I understood the principle of this section and the act, generally, to be to avoid such distinctions.
Hon. M. de Jong: No, I don’t think I agree, with all due respect to the member, because whilst the decision might be made to contract with another agency to provide that parking service or that food service, there would be, one presumes, income flowing to the taxpayer who is responsible for LNG income tax. The income they derive in that manner would be captured and attract the tax.
B. Ralston: Subsection (d) refers to “disposing of electric power generated at the LNG facility.” Is this intended to refer to the situation where the LNG facility, using natural gas as the feedstock or the source, generates electrical power in surplus of its needs and sells it, typically, into the grid, as we know has taken place at the Kemano site for some time? Or is it intended to capture the generation of electricity which is used internally to the facility?
Hon. M. de Jong: The former, the sale of surplus energy into the grid.
B. Ralston: In section (h) it refers to “restoring, reclaiming or remediating….” This is at the end of life of an LNG facility. The intention is that all the activities up to the remediation of the site — until it’s, presumably, restored in a manner that is not quite greenfield but re-
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moves most of the traces of industrial activity — be subject to tax. Is there any provision in the act to obligate a firm to undertake that activity?
Certainly, in the oil and gas sector — I know the Auditor General completed a report — there are many orphan facilities where the company that’s responsible ostensibly for the cleanup has not engaged in that activity. There’s no pursuit of them because they’re defunct, or they’ve gone out of business, or they’ve left the jurisdiction. There’s a provision, then, for posting a series of bonds in order to make good, or if that activity isn’t performed, then the bond is forfeited.
Is this the only mechanism by which the restoration, reclaiming and remediating will be conducted? Or are there other provisions in the statute at a later date?
Hon. M. de Jong: I don’t want the committee or the member to be under any misconceptions.
I wouldn’t describe sub (h) as qualifying as a provision that imposes a positive obligation, as it relates to site remediation.
I also would not want to leave the committee or the member with the impression that there are provisions in this taxation bill that impose those positive obligations to the extent that they exist elsewhere in environmental protection legislation.
This subsection does not perform that task, and I wouldn’t want to leave a different impression.
B. Ralston: Well, presumably by describing it as a liquefaction activity and, therefore, making it subject to tax, one creates, arguably, an incentive to not do it and to see if you can leave the jurisdiction without making that payment because the activity itself would be subject to tax.
Has this part of the act…? Admittedly, it’s hypothetical, because we don’t have a final investment decision just yet on any facility proceeding, and we’re talking about the end of life of an LNG facility, so this is some distance out. But doesn’t it create a disincentive to actually do the work that’s required?
Hon. M. de Jong: I think this subsection has more to do with ensuring that reports and tax returns are filed right through the closure process — which, by the way, there is, through the closure tax credit, a built-in incentive to do.
I’m not sure I agree with the member’s observation about this representing a disincentive. For the reasons I’ve just alluded to, there may well be a strong incentive. Of course, insofar as we were talking about the closure of a facility that has come to the end of its life, the tax, after all, is only payable on…. I use the term “profits,” and then there are far more technical terms.
As I say, the available closure tax credit is there as an incentive which is only going to be available in circumstances where the taxpayer is filing the necessary documentation.
B. Ralston: We now turn to a number of descriptions with the LNG moniker as the adjective. What I’d like the minister to do…. I think it’s reasonably clear, but the difference between an LNG facility, an LNG plant and an LNG source.
My understanding, from reading it, is that an LNG plant is the smaller entity, and the LNG facility is the plant and the land surrounding it. But maybe he can clarify the distinction between a facility, plant and source.
Hon. M. de Jong: The member is right. There are a number of definitions, all very specific and all…. Well, not all, but in the case of LNG facility and LNG plant, they are of sufficient importance that they warrant descriptions in specific sections, sections 7 and 8.
I think I heard the member refer a moment ago to the distinction between the facility and the plant and the significance of one including land and the other not. That is a relevant and pertinent distinction between the two.
I am, candidly, a little cautious about trying, off the cuff, to offer a broad, definitive distinction in circumstances where two entire sections of the bill are dedicated to highlighting that distinction. But I will agree with the member that as between facility and plant, the one includes the land upon which the facility…. That is, LNG facility includes reference to the land upon which an LNG plant is located.
B. Ralston: I’m prepared to defer a more detailed discussion to the individual sections themselves, but I didn’t want to skip over them at this particular stage. With that note, I’ll defer detailed discussion until we get to section 7 and section 8.
The term that I want to address at this point is “LNG facility inlet meter,” and it includes the definition of the feedstock spur line. This is the point at which, in relation to the plant — or the land and the plant, the facility — the gas is measured for the purposes of calculating tax.
I’m taking it — again, to return to our previous discussion — that there will be only one facility inlet meter that will measure all the intake. If I’m wrong in that, will there be potentially a number of facility inlet meters, depending on the way in which the plant is constructed and its size and the number of so-called trains that are part of the plant?
Hon. M. de Jong: LNG facility inlet meter — I think the member has identified, in part, correctly the significance of the term. I am told that whilst in most cases there will be a single inlet meter, the definition has been drafted in contemplation of the possibility that there could be more than one for a facility.
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B. Ralston: Next, and this is not the subject of a stand-alone section, is “LNG source.” It says: “liquefaction activities carried out at or in respect of a particular LNG facility.” What is the meaning of that definition?
Hon. M. de Jong: What I can tell the member and the committee is that the relevance of the term “LNG source” relates to the concept of the LNG source being key to determining income, subject to the act, for the following reasons.
Firstly, it clarifies that the calculation of net operating income, net income and capital investment account all must be tied to the LNG source. Secondly, the tax applies on an LNG-facility-by-LNG-facility basis, and we’ll come to that later in the act. It is a unique feature to this act, to be sure. Thirdly, the tax only applies to income derived from an LNG facility in British Columbia. All of those are tied to the notion of LNG source.
B. Ralston: It seems very self-referential, because it refers to liquefaction activities, of which there is a definition, and LNG facilities. Why is there a need for a further term, rather than simply speaking of liquefaction activities that are carried out at a given LNG facility, given that those two terms are defined?
Hon. M. de Jong: I’m advised that what we have before us is an attempt to remain faithful to a principle and an approach that is contained within the federal Income Tax Act which seeks to tie all income to a source. In this case, remaining consistent with that methodological approach, the desire was to enshrine the concept of LNG source in the same way that the federal Income Tax Act does for other types of income.
B. Ralston: The terms that I want to look at next are “net income,” “net operating income” and “net operating loss.” These are defined and pursued in individual sections further in the act. I don’t want to be seen to be glossing over these, but I won’t ask the minister to define those here. I just didn’t want the sense to be that I was not going to discuss those in detail in further sections.
With that proviso, if I can then move to a definition of a taxpayer. I think I asked the minister earlier whether this included non-residents and those without a permanent establishment in the province, and I believe the answer was yes. So it’s an expansive definition of “taxpayer,” given that that’s “a person who engages in or has income derived from liquefaction activities.” I wanted to confirm that again in dealing with this definition of “taxpayer.”
Hon. M. de Jong: Yes, I believe the answer remains the same, with the proviso that it is a person who engages in or has income derived from liquefaction activities.
Section 1 approved.
On section 2.
B. Ralston: This section adopts certain definitions from the federal act, and by the act, I take it it’s the Income Tax Act. It specifically excludes in subsection (2) some definitions in the federal act. Cost amount, gross revenue and minister are understandable — and the definition of “trust.”
Particularly for “cost amount,” “gross revenue” and “trust,” how would they then be defined if the proposal is to exclude the federal definition, since “cost amount” isn’t defined in the definitions section? I don’t believe “gross revenue” is either, nor is “trust,” other than the reference that’s just above at the end of section 1, “does not include a testamentary trust.” Given that exclusion of the federal act definitions, what would the reader or the tax planner look to in order to define those terms?
Hon. M. de Jong: I think I understood the member’s question. Just going through the first couple here, I am advised that under sub (2)(a), because the act doesn’t incorporate or deal with notions of capital gains, the defined term “cost amount” wasn’t deemed necessary to be imported from the federal act.
Under sub (2)(b), “gross revenue,” I am referred and can refer the member to this section of this bill, 77(1), which offers a specific definition as it relates to the use of the term in that section. I think the member is alive to the logic behind the definition of “Minister” being different.
B. Ralston: And the definition of “trust” in (d)?
Hon. M. de Jong: I apologize for the delay. What I can advise the member and the committee is that the intention is to rely upon the common-law definition of “trust” — more particularly, in circumstances where the federal legislation has sought to expand or particularize in a specific way various trusts, to make clear that the definitions contained in the sections referred to in section 2 are not intended to be incorporated for the purpose of this act.
What I was endeavouring to ascertain is whether somewhere within the provisions of the bill there was a specific definition of “trust.” There is not. The purpose behind section 2, in dealing with the question of the federal act and federal regulations, was to make clear that the act, in where the term “trust” is used, is not intended to incorporate the federal definitions contained at 108(1) and 248(1) of the federal act.
B. Ralston: Let me try this. Although the common-law definition of “trust,” I think, is reasonably certain, is
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it the intention of the legislation by excluding this definition to avoid some of the more exotic varieties of trust that have led, particularly, the federal Finance minister to take some remedial action?
I am thinking of real estate investment trusts and other hybrid forms of trust that are vehicles for tax avoidance. Would that be part of the purpose in excluding this definition?
Hon. M. de Jong: I’m told I can advise the committee and the member that the intention here derives from a belief or recognition that the federal act, and the member may have been alluding to this a few moments ago, contains a myriad of different type of trusts — “boutique” trusts, if I can use that term — which have no real application to what we are endeavouring to accomplish here.
Therefore, the desire was to remove any doubt that those definitions had application in this bill or this legislation.
B. Ralston: I am looking, then, at subsection (4). It refers to the definition of “amount,” and it expressly refers to section 248(1) of the federal Income Tax Act, which is described as the definition section, and it’s prolix. The definition that is chosen here reads, according to this, “‘amount’ means money, rights or things expressed in terms of the amount of money or the value in terms of money of the right or thing,” and it ends there, “except that,” and then there are a number of exceptions.
I think I’ll be fairly safe in presuming, and I’d just like this confirmed, that the desire was to use the broad, general definition that’s in the act and then to exclude all the particular exceptions that are set out in the expanded definition in the federal act.
Hon. M. de Jong: I am advised that is correct.
B. Ralston: The next reference is to “business.” It’s to be read as if the reference to “except for the purposes of paragraph 18…section 54” were excluded. Perhaps it’s a bit convoluted to follow here. I’m not sure what the excluded refers to. Is it for the purposes of 18, all those sections? And where does the definition end? It is not entirely clear in the way in which it has been described here.
The definition of “business” in the act. It says: “‘business’ includes a profession, calling, trade, manufacture or undertaking of any kind whatever….” Then it goes on: “except for the purposes of” — then it recites the same sections — “an adventure or concern in the nature of trade but does not include an office or employment.”
What’s excluded and what’s included? In my reading of that, it’s not clear to me.
Hon. M. de Jong: These are all fair questions. They’re technical questions, but they’re fair questions. I am trying to contain my enthusiasm for the federal Income Tax Act that I hold close to my bosom.
The definition that we have incorporated would read as follows: “‘business’ includes a profession, calling, trade, manufacture or undertaking of any kind whatever” and “an adventure or concern in the nature of trade but does not include an office or employment.”
The deletions, I am advised, relate to matters contained elsewhere in the federal Income Tax Act which are deemed to have no practical application to the matter before us.
B. Ralston: I think that’s clearer than the way in which it’s described in the act, but that may be a requirement of precise drafting.
The next one is (c), the definition of “exempt income.” Perhaps the minister could similarly read the definition as it is intended, excluding the sections that are referred to in this definition. In the same manner as the previous one, it excludes certain parts of the federal definition.
Hon. M. de Jong: Two things. One, I’m going to be cautious about trying to read this one out, because God forbid I get it wrong. What I’d rather do is — and I think I understand what the member is looking for — write out what the effect of this subsection is so that we have a definitive statement. I’m leery about reading it into the record incorrectly, given the punctuation. I’ll do that as quickly as I can.
I wonder if the committee might recess, in any event, for five minutes.
The Chair: The committee will recess for five minutes.
The committee recessed from 5:27 p.m. to 5:36 p.m.
[M. Dalton in the chair.]
B. Ralston: The next definition that I wanted to look at was the definition of “exempt income,” which the minister had commented on. Then following that was the “filing-due date.”
Hon. M. de Jong: Why don’t I deal with exemptions….
B. Ralston: Okay.
Hon. M. de Jong: Subject only to our subsequent review from the Hansard of these discussions, I believe I can read into the record what the definition of “exempt income” — drawn from the federal act, minus the exemptions that don’t have any application — would be for the purpose of interpreting the bill before the House. “‘Exempt income’ means property received or acquired by a person in such circumstances that it is, because of any
[ Page 5591 ]
provision of this act, not taken into account in computing a person’s net income, net operating income or net operating loss.”
B. Ralston: Thank you. The next definition is “filing-due date,” which, again, is taken from the federal act, and there are some modifications to that. I’m going to ask the minister to either read or write out and then read the definition that’s being constructed by the operation of this particular subsection.
Hon. M. de Jong: I’m more than happy to do that for subsection (d) and subsection (e). I wonder, given that we’re likely to be at this for a day or more, if the member is content to have me provide that in due course.
B. Ralston: I’m not quite sure, procedurally, how we would do this. Rather than vote on section 2, simply stand it down? I see the Clerk nodding.
So if section 2 could be stood down for those two purposes, and then we could perhaps move to section 3.
Section 2 stood down.
On section 3.
B. Ralston: Section 3 would appear to be a legislative mechanism for incorporating future changes to the federal act as if they existed at the time this legislation was passed. It’s a bit of a deeming operation. I guess I would describe it that way. It’s fairly long and technical, but I don’t think I need a complicated explanation. I’m just interested in what the general purpose is. I’ve tried to summarize it in my own way, so perhaps the minister can confirm that or not.
Hon. M. de Jong: In general terms, what section 3 is endeavouring to do is provide interpretation rules for the reading of the federal act provisions. We’re providing rules for the application of cross-references to other provisions in the federal act. So in general terms, that’s the purpose behind the act. I’m not going to call it an interpretive guide. It has the force of law. But it is interpretive rules for reading the federal act.
Section 3 approved.
On section 4.
B. Ralston: This section states, and it’s a guide to interpretation: “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.” It says similar and not identical, I note.
Does this mean that interpretation bulletins, administrative policy and federal court or even provincial, I suppose, superior court decisions of the federal Income Tax Act would have an impact on this act?
Hon. M. de Jong: In this case, I will use the term “interpretive guide” because that’s what’s contemplated here. In making that clear via section 4, I think it’s fair to say that in making reference to the federal act, that would…. In circumstances where one is adopting or looking to the federal act, you are looking to the act, you are looking to the interpretive guides that are presented with respect to the federal act and, presumably, also looking to the judicial guides and pronouncements that derive from a judicial consideration of the federal act.
B. Ralston: In the administration of the federal Income Tax Act, the Minister of National Revenue, I understand, is sometimes prepared to provide not only interpretation bulletins — that is, their preferred interpretation of the statute — but, in some cases, advanced rulings.
In order to assist in tax planning, is there any intention to provide such a similar service? I’m not sure whether that’s within the capacity of the ministry at this point, but given the priority that’s been placed on this by the government and the magnitude of the potential investment, I’m just wondering whether this might be a new direction in terms of the administration of the act.
Hon. M. de Jong: I’m advised that insofar as tax guidance, advanced rulings, are provided in circumstances today, in certain circumstances the same is contemplated with respect to this act and the new tax that it creates. So I think the short answer is yes.
B. Ralston: I know that the ministry prepared a helpful interpretive guide to the legislation as a whole and gave some examples. Is it intended, or is there a provision within the departmental budget, for a more extensive interpretation bulletin — particularly of key sections, such as income or the use of the terms “derived” or “taxpayer,” some of the utterly key terms in this act? Is there an intention to provide that in advance of any court rulings or any related federal interpretations, either at the ministerial or staff level or at the level of courts?
Hon. M. de Jong: I think that it’s fair to say the first priority will be the completion of the legislative package, which we are obviously working on today — thereafter, any regulations that will be necessary to breathe life into the regime. Thereafter, or perhaps contemporaneous to that, the ministry will be tracking closely the areas where proponents — or I should, in this context, say potential taxpayers — make inquiries and where they believe those kinds of guides, advanced rulings, would be most helpful. That’s probably the priority of activity going forward.
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B. Ralston: I think I may know the answer to this question, but I’ll ask it anyway. Is the minister confident that there is the capacity within the ministry to perform those kinds of fairly delicate tax opinions? Or would this be something that leading tax law firms might be contracted to do? How is it proposed that that would be done?
Hon. M. de Jong: I am relatively certain that the hon. member has conspired behind my back to deal with the department and taken their advice to ask that question. The answer is, I believe, yes. But it’s probably as good an opportunity as any for me to point out something that I’m sure the member appreciates, notwithstanding the partisan nature of debates that occur in here, in this chamber from time to time.
This has been a lot of work, and the work is not done yet. There is a very talented group of people who have worked through a myriad of scenarios and been obliged to contemplate all of the circumstances that can arise and to develop this package.
I am grateful, as I think all members are, for that dedicated service. I believe that the resources exist for the work necessary, going forward. To the extent that any very, very specialized requirements might arise, it’s conceivable, I suppose, that we would never hesitate to seek expertise elsewhere if we deemed it necessary or helpful.
I must say that the folks within the department — some of them here before the committee, others watching on a television screen elsewhere in the building, and others tracking from their offices — have done yeoman service to present the package that is before the committee for consideration. I and, I know, the member, are grateful for the work that they have performed.
B. Ralston: I want to join with the minister in acknowledging just that. Certainly, while I have more limited contact with staff members of the ministry, understandably, it has certainly been my impression that the work has been of very high quality. The assistance that they provide in drafting this very complicated piece of legislation is appreciated.
I’m glad I gave the minister the opportunity to make that statement. Notwithstanding the present environment of fiscal constraint, perhaps that will be reflected in some form of appreciation that is other than non-monetary in the future.
Section 4 approved.
On section 5.
B. Ralston: Moving now to section 5, I suppose this is simply a demonstration of the fact that one can never be too careful in constructing a tax statute — simply that “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.”
I think that’s really all I want to say on that, other than that it’s good for illustrative purposes about the caution that goes into constructing this kind of a statute. I have no questions on it.
Hon. M. de Jong: I won’t respond except to alert the committee and the member to the fact that following passage of section 5, I have the material we were seeking with respect to section 2. I am content to return to it now, if that is the will of the committee.
Section 5 approved.
On section 2.
Hon. M. de Jong: Two terms that we were dealing with, the first being “filing-due date.” The applicable definition, I am advised, after adopting portions of the federal act and excluding other portions of the federal definition, would read as follows: “‘Filing-due date’ for a taxation year of a taxpayer means the day on or before which the taxpayer’s tax return under this act for the year is required to be filed or would be required to be filed if tax under this act were payable by the taxpayer for the year.”
The second term is “inventory.” “‘Inventory’ means a description of property, the cost or value of which is relevant in computing a taxpayer’s income from a business for a taxation year or would have been so relevant if the income from the business had not been computed in accordance with the cash method.”
Section 2 approved.
On section 6.
B. Ralston: This section simply refers to a number of terms and adds to them for, I suppose, greater clarity that they’re in respect of an LNG source. The minister has explained the reason for using the language “in respect of the LNG source” earlier. That is to mirror the federal act where all income is derived or emanates from a source. Beyond that, is there any other purpose in this particular section?
Hon. M. de Jong: Section 6, I believe, the member summarized accurately. The intention here around section 6 is to ensure that in determining net operating income and net operating loss, the taxpayer only includes amounts in respect of the LNG source. We talked about the definition of LNG source a little while ago.
For example — here’s a practical example — expenditures and outlays of an integrated operator related to activities upstream of the LNG facility are not part of an
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LNG source of that taxpayer and are not taken into account in determining an amount under this act. That is a very practical and realistic example.
Section 6 approved.
On section 7.
B. Ralston: This is the more extended definition of LNG facility that we referred to earlier in the definition section. The facility is defined as the plant itself and then land that is contiguous but for the purpose of the facility.
I suppose there’s a certain ambiguity in it, in the sense that you may acquire a big chunk of land and not use all of it and simply leave it undeveloped. But other than that, is there anything further to the definition in section (a) and (b)? I will have a separate question about (c).
Hon. M. de Jong: I think we talked about virtually all of the components of this. We talked about the foreshore — land covered by water.
This is where the significant addition here is the reference to a “plant located in British Columbia.” That’s the mechanism by which we make clear that the provisions apply to an LNG plant located in British Columbia.
B. Ralston: In subsection (1)(c), it refers to “tangible personal property used on, and improvements to, the land.”
Can the minister give an example of tangible personal property and improvements to the land that are being described in that subsection?
Hon. M. de Jong: Two practical examples that would be captured by this are…. One we talked about — the adjacent parking lot. Another would be an office building, office complex, that is next door or attached to the LNG facility.
Section 7 approved.
On section 8.
B. Ralston: This is the extended definition of “LNG plant.” The minister may recall that I have referred to the term that is used in (a), (b) and (c). I don’t think it’s in (d).
The term is “a series of systems.” It’s not defined in the definition section. Obviously, it’s of considerable import as to what it may mean because it’s important in deciding what infrastructure will fall within the definition.
Is there any further illumination the minister can bring to this term? It’s certainly a rather opaque term. Or would he choose to illustrate by a series of examples?
Obviously, there is some definition in the sense that it speaks of the purposes for which the series of systems might be used. Can the minister explain what would be included in the term “a series of systems”?
Hon. M. de Jong: I think it is a fair observation for the member to make that we’ve tried to take — and the drafters have tried to take, in this context — a functional approach to describing what is occurring. I can’t say to the member that in drafting this, the attempt has been made to capture all activities that any plant would necessarily be involved in as part of the liquefaction process.
I think I understand the member’s interest in the term “series of systems.” I was saying — this might not be a great example — that in an activity that may well see evolving technologies, I think we have to be a little bit cautious about particularizing, in too much detail, a particular process. I said here it’s the difference between talking about a mechanism for milking a cow or stipulating the 4000 series milking machine. These things can change.
As I say, what the drafters have tried and we’ve tried to do is refer to in sub (a) the grand function of liquefying natural gas and then some of the subprocesses that would be involved in undertaking that operation.
I’m perhaps less troubled by the term that the member is, but only because of the fairly expansive description of the activities that would be captured by, and be included in, those systems.
B. Ralston: The concern is one that I’ve discovered in reading some legal commentary on the proposed legislation. That’s a term that was identified as being somewhat imprecise.
I suppose the concern would be…. In interpreting tax legislation generally, the rule is — and it has been a while since I looked at the Sullivan and Driedger on the Construction of Statutes — that particularly in a tax statute, the taxes…. I’m just going to read briefly. “Statutes that impose a tax on the personal property of a subject are strictly construed in favour of the subject and against the Crown. Strict construction of tax legislation amounts to a presumption in favour of the taxpayer, where its effect is to resolve doubts concerning the subject’s liability in favour of the subject.”
Given that that may be a general principle that’s applied here, I guess my concern is — and I’m sensing that the minister doesn’t share that, but perhaps he could clarify — that he’s not concerned that the potential ambiguity or lack of clarity here may lead to a situation where what was intended at the outset by the drafters may not be included as part of the description in “a series of systems,” the term, and may result in the loss of tax revenue that was envisaged by the drafter.
I know that’s a rather imprecise way of putting it, but I hope I’ve given a sense of my concern. I’d just be interested in the minister’s response to that concern.
Hon. M. de Jong: Well, I learned over the years never to underestimate the capacity for someone to develop a
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really imaginative or perhaps compelling and, I suppose in some cases, even successful argument around interpreting a statute.
In this case, of course, the importance relates to the fact that the definition of what is included within an LNG plant drives all kinds of other calculations relating to the tax — when the tax is payable, capital expense accounts. So from that point of view, I’m not in any way diminishing the importance of the issue that the member is exploring, in bringing the legislation to the House and to the committee for its consideration.
I can say that on the strength of advice and the expertise that has been dedicated to this, we believe that the section presents with sufficient particularity to allow for interpretation and, ultimately, rulings that will withstand any sort of judicial scrutiny. One says that recognizing that, at the end of the day, it remains for taxpayers to come to their own conclusions, and if they wish to pursue an argument to the courts, they always have that right.
B. Ralston: Subsection (2) makes some very specific exclusions and says that they do not form part of the LNG plant: the feedstock pipeline; improvements that are located upstream of a feedstock spur pipeline; a vehicle or vessel…. I presume that’s trucks or railcars that may transport or ships that may transport. Again, the term “a series of systems” is referred to.
I think in (d) there’s an exception that is referred to, a pipeline used for the purposes referred to in subsection (1)(c)(ii) or (c)(iv). Perhaps the minister could just clarify that particular exception.
Other than that, unless he has any comments, I think those are relatively straightforward, having been discussed. The definition has been discussed earlier in the proceedings of the committee this afternoon.
Hon. M. de Jong: In sub (2)(d) the three exceptions referred to there would be the pipe that heads out to the ocean dock, the sea dock, the port; the pipeline or the truck dock for transport; or to a regasification facility. Those are the three types of pipelines that would not be captured by the general rule contained in the provision.
B. Ralston: Subsection (3) describes when an LNG plant comes into existence. It says: “when the construction, fabrication or installation of a series of systems referred to in subsection (1) (a) or (c) begins in British Columbia….” So would it be fair to say that for those proponents who, although have not made a final investment decision, have begun work on their sites — I’m thinking particularly of the Chevron site — for taxation purposes the plant is already in existence, assuming the legislation passes?
Hon. M. de Jong: I believe the answer is yes. To the extent that there is site preparation work taking place on land where an LNG plant is to be constructed, it would be captured by this provision.
B. Ralston: I think we’ll deal with this in 9. Given there’s no income derived…. I mean, it’s simply outgoing expenditures, so there’s obviously no liability for tax at this point. That’s deemed to be the start time. Is there any specific…? It says the “construction, fabrication or installation,” so presumably, it’s a physical act on the site that is required to initiate the plant coming into existence, as opposed to designing it or conceiving it or some more abstract process. Would it be fair to say that that’s what is intended by the words “construction, fabrication or installation”?
Hon. M. de Jong: I’m advised that’s correct.
Section 8 approved.
On section 9.
B. Ralston: This, I think, is fairly straightforward in the sense that it follows the federal act — but not necessarily the federal act. The crucial, I suppose, provision is subsection (4). A person “has no taxation year (a) that begins before January 1, 2017.” Can the minister explain how that particular date was chosen?
Hon. M. de Jong: Something of an arbitrary date that was taking into account our desire to have the entire taxation package, including regulations, in place — we talked earlier about the amount of work involved in doing that — and also having some regard for the anticipated or hoped-for construction schedule by proponents who are in the midst of moving through to final investment decisions and our anticipation of that schedule.
I’m reminded, as well, though, that it is in the interest of taxpayers to have the structure in place well before liquefaction activity is actually taking place at the site so that they can organize themselves in a way that works and properly understand what their filing obligations and reporting obligations are under the act, by facility. As we have discussed and will discuss later, the tax does apply by facility.
B. Ralston: Subsection (b) would refer to those taxpayers who are not yet engaged in liquefaction activity prior to the end of the fiscal year. So that would deal with those who come after January 2017.
The same reference there, to a taxation year — that’s the same reference that is included in the earlier part of the subsection, subsection 9(1), I take it?
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Hon. M. de Jong: I am advised, yes.
Section 9 approved.
On section 10.
B. Ralston: The term “fiscal period,” apparently, has the same meaning as in the federal act, section 249(1). Can the minister explain the purpose of this section? I understand it has particular importance for the tax’s application to amalgamation and continuation of corporations, but perhaps the minister can confirm that.
Hon. M. de Jong: What is being contemplated here is the establishment of rules in relations to fiscal periods for persons and partnerships — and when we say “persons,” that being the usual defined term. A person or partnership that is subject to federal income tax will be required to have the same fiscal period for both the federal act and this act. I think the member would find that quite straightforward.
Secondly, it requires a person or partnership not subject to federal income tax to determine their fiscal period using the same rules as for federal tax purposes and, thirdly, requires an individual who is not a taxpayer for federal income tax purposes to use a calendar year as their fiscal period. Broadly speaking, there’s the three requirements. There’s a couple of other provisions, but those would be the main provisions relating to the establishment of fiscal years.
B. Ralston: I note that in subsection (2), subsections (4), (5) and (6) of 249.1 are excluded. And 249.1(4) refers to an alternative method. Can the minister explain why those provisions were excluded from this calculation?
Hon. M. de Jong: The provision, sub (5) from 249.1, dealing with tax shelter investments — the determination was that it simply wasn’t applicable in these circumstances. The public policy around sub (4) and sub (6) was simply, with respect to individuals, not to provide them with an election option as contemplated in this provision of the federal Income Tax Act. It’s simply a policy choice to require a traditional fiscal period as opposed to allowing for the election of something different.
Section 10 approved.
Hon. M. de Jong: I move the committee rise, report progress and seek leave to sit again.
Motion approved.
The committee rose at 6:26 p.m.
The House resumed; Madame Speaker in the chair.
The Committee of the Whole, having reported progress, was granted leave to sit again.
Hon. M. de Jong moved adjournment of the House.
Motion approved.
Madame Speaker: This House, at its rising, stands adjourned until 1:30 tomorrow afternoon.
The House adjourned at 6:27 p.m.
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