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)

Wednesday, November 26, 2014

Afternoon Sitting

Volume 18, Number 8

ISSN 0709-1281 (Print)
ISSN 1499-2175 (Online)

WEDNESDAY, NOVEMBER 26, 2014

The House met at 1:33 p.m.

[Madame Speaker in the chair.]

Routine Business

Prayers.

Introductions by Members

Madame Speaker: We have in the gallery today a group of individuals who have made a major contribution to ensure that government programs and policies are fairly administered. So 2014 marks the 35th anniversary of our provincial Office of the Ombudsperson. With us today to commemorate this anniversary: Karl Friedman, our province’s first, who served in that role from 1979 to 1985; Stephen Owen, 1986 to 1992; Dulcie McCallum, 1992 to 1999; and Kim Carter, our current Ombudsperson since 2006. They are joined by Ombudsperson staff members.

In addition to the office’s anniversary this week, November 24 to 28 has been declared Fairness Week in British Columbia in recognition of the rights of British Columbians to fair, reasonable and respectful treatment by public authorities.

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Would the House please join me in welcoming these guests and in acknowledging the significant contribution they have made and continue to make towards enhancing openness, transparency, accountability and fairness in our province’s public service.

Interjections.

Madame Speaker: It is the week of fairness, after all.

Hon. M. Polak: We’re joined in the gallery today by some very special guests from The King’s School in Langley, the civics 11 class on their field trip. Joining us are Benjamin Budlong, Max Kai, Isaac Clay, Lisette Clay, Rachel Kbilke, Sonya Liu, Eli Parabeau, Jared Regan, Mac Thompson, Emma Vanderijk, Taylor Will, Elliott Wooding. They are accompanied by their teacher, Lorena Hensel, who brings her class here every year, faithfully — and Candace Clay as well. Would the House please make them very welcome.

C. James: It’s always an exciting day to announce babies in the Legislature. This is a staff person, someone who works in the precinct. Ismael Ribeiro, in Hansard broadcasting services, so I better make sure that I get this right, with his wife, Angela, and his daughter, Isabella — thankfully, there’ll be someone to correct it if needed — are the very proud parents of a new baby boy born at 1:28 a.m. yesterday, weighing in at 8 pounds. I know the entire precinct offers them best wishes and a few hours’ sleep if possible.

Hon. T. Lake: I have a couple of sets of introductions today. First of all, I would like to welcome in the gallery today Dr. Julio Montaner, the clinical director for the B.C. Centre for Excellence in HIV/AIDS, and Irene Day, the director of operations. I’ll have a little more to say about Dr. Montaner later. Earlier today we honoured him for the cutting-edge and life-saving research he has done along with the Centre of Excellence in HIV/AIDS here in British Columbia. I would ask the House to make Irene and Julio very welcome in our Legislature today.

November is also Crohn’s and Colitis Awareness Month, and another guest in the gallery today is Jill Orsten, who is the director of development for Crohn’s and Colitis Canada.

Here in Canada more than 10,000 cases of Crohn’s and colitis are diagnosed each year. In fact, one in every 150 Canadians suffers from this disease. Jill was diagnosed in the third grade and, despite the challenges that she’s faced, has gone on to help Crohn’s and Colitis Canada build their reputation as a world leader in research funding and Canada’s largest non-governmental funder of Crohn’s and colitis research.

Would the House please welcome Jill to the Legislature today.

J. Darcy: It gives me great pleasure to welcome a couple of guests to the House today. Tara Hornsby is a member of the Hospital Employees Union and a care aide in the Fraser Valley, one of those 35,000 care aides in the province who are really unsung heroes and heroines of our health care system.

A few months ago she signed up to be involved in her union’s campaign to learn more about political action. Her name was chosen from a draw, and the prize was a trip to the Legislature of British Columbia and the chance to have lunch with me but mainly to sit in on question period. She’s joined by the communications director of the Hospital Employees Union, Mike Old, a frequent visitor to this House.

Will the House please join me in welcoming them today.

G. Hogg: Mark Twain once said that the two most important days in our lives are the day that we’re born and the day that we find out why. As to the birth date, the NHL was born on this day in 1917. It replaced the NHA, and it consisted of five Canadian teams.

Legislative assistant Suneil Karod was born on this day in 1982. He replaced previously unused space, and he has, for more than 32 years, filled it quite adequately. As to the second day, he’s still searching. Please join me in wishing Suneil a happy birthday.

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L. Popham: It is my pleasure to welcome Leo Gerard to the chamber, the international president of the United Steelworkers. On Monday night I had the pleasure of making him dinner, and a little bird told me about some of his favourite things. We had four pounds of Quadra Island mussels; Saltspring Island garlic bread; Saanich Peninsula tomatoes; one of his favourites, Vancouver Island kale; and a little bit of B.C. wine.

We always appreciate it when Leo visits our province. Thank you for coming.

Hon. C. Oakes: Today I had the true privilege of meeting an inspirational Special Olympian. Ben Vanlierop has won gold and silver medals in swimming.

This past summer we hosted the Canadian Special Olympics here in British Columbia. It was the largest in our history, and it was a great partnership with UBC. B.C. was successful in the international summer Special Olympics. B.C. makes up over half of the team.

Ben, thank you very much for coming.

Dan Howe of the Special Olympics, thank you very much for coming.

Would the House please make them welcome.

G. Holman: I’m pleased to introduce today three of my constituents from the Southern Gulf Islands Recycling Coalition, a group that provides such an essential service throughout the Gulf Islands. The three representatives are Richard Philpot, who also represents the Pender Island Recycling Society; Peter Grant, who manages the Saltspring recycling depot; and Ann Johnston, a long-serving member of the coalition, also representing the Mayne Island Recycling Society. Would the House please make them feel welcome.

S. Hamilton: It’s my pleasure to rise in the House today and introduce someone who I just recently met. This is an individual who left a very successful career as a software engineer for Apple. As a matter of fact, he helped design the interface for the many iPads that I’m sure are in the House right now.

He woke up one day and decided he wanted to become a mayor. Goodness knows why. But it’s my pleasure to introduce to the House today the new mayor of Saanich, Mr. Richard Atwell. Would the House please make him feel welcome.

V. Huntington: I, too, have a couple of introductions today. I’m pleased to personally reintroduce Dr. Karl Friedman and his wife, Elizabeth, who are with us today. As you noted, Dr. Friedman was the first Ombudsman in British Columbia. I am personally pleased to say they are distinguished constituents of mine.

I’d also like to mention that Brad Densmore is with us. Brad worked in my office as communication and research officer for three years or more and is now working in the Ombudsperson’s office in their communications department.

E. Foster: It gives me great pleasure today to introduce two constituents of mine. Bob and Rosemary Buchan are in the precinct today. Bob and Rosemary are here to visit their son Wade Grant. Wade is a special adviser in the Premier’s office, so would the House please make them welcome.

G. Heyman: It gives me great pleasure to introduce two very engaged constituents in Vancouver-Fairview who are joining us in the precincts today. Ros Kellett is a retired high school teacher. She’s been a great community activist in Fairview for many years, very engaged in my constituency association and one of many people who have contributed to our democracy by seeking election to this Legislature.

With Ros today is her husband, Neale Adams, a former reporter as well as a former advocate of co-ops, specifically housing co-ops, which is how I met Neale many more years ago than I am going to admit in this House. Will the members please join me in making Neale and Ros very, very welcome.

Hon. S. Bond: We’re very delighted today to have in the House Nicki Tuttle and her new husband, Connor Blakesly. Nicki is one of two "Nickys" in the front office of JTST. She does a fantastic job. She’s part of our administrative team, and she’s a true joy to work with. She does lots of very special things, takes care of us very well.

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I should say that Connor is going to do very well, because she makes fantastic cupcakes for our office on a regular basis. We love working with her. We’d love to welcome both Nicki and Connor to the House today.

D. Donaldson: I have two very special constituents of Stikine here today. Dini ze’ Namoks, hereditary chief from the Wet’suwet’en, John Ridsdale, is here visiting. John and I are related through marriage in the hereditary system and have worked together quite closely for over 20 years.

Joining him, as well, in the gallery is a member of the Gitxsan, Wilp Gyologyet, from the Lax Gibuu, the wolf clan, Muxs wun buhn. That’s Kyhm Yunkws, who is also my son. Would the House, the Legislature, please make welcome these two special guests who are honouring us with their presence today.

J. Thornthwaite: Also joining us in the Legislature today are Robert Davidson; George Kaminsky, who’s a constituent of the member for West Vancouver–Capilano; and Doug Barber, who’s my constituent. All of them are with the Canadian Pulmonary Fibrosis Foundation. This foundation provides education and support for people affected by pulmonary fibrosis. They’re here to meet with
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the Minister of Health, myself and other members of the House and raise awareness of the disease and its impact on those who are dealing with it.

Would the House please make them welcome.

S. Sullivan: On Monday night in New York City a resident of British Columbia won an international Emmy award. His name is Damon Vignale, and his film is The Exhibition. He’s not only a resident of my riding, but he also lives in my building. I’d like to acknowledge his great honour that he brought this province.

Tributes

FREDERICK HOWARD PINNOCK

Hon. N. Yamamoto: Earlier this morning my partner, Fred’s, father passed away. He was predeceased by his son Stephen but survived by his wife, Shirley; his son Fred; and his two daughters, Claire and Kathy; and seven grandchildren.

My Fred was named after his father and followed in his footsteps in the RCMP. Fred’s dad was a young constable working in P.E.I. when he met his wife-to-be, Shirley. This was early in the 1950s. He met her at a country barn dance, where she apparently parked illegally and he was issuing her a ticket.

Anyways, they fell in love, but at that time in the RCMP you actually had to have served for five years at a minimum with the RCMP before you were allowed to be married. Plus, you had to have $1,200 in your bank account. Well, he had neither. He borrowed money from Shirley, which he apparently paid back right after the wedding. He took a punitive transfer to Ottawa in order to get married.

He took that punitive transfer to guard Parliament Hill, which we know now, after the recent incidents in Ottawa, is a noble and courageous responsibility. He retired after 35 years with the RCMP, and he spent 28 years in retirement.

Thank you to this House for allowing me to recognize Frederick Howard Pinnock. He was a good man, and his was a life well lived.

Introductions by Members

M. Dalton: I have three guests in the gallery here today. One is Anthony Van Grol, who is the general manager for AdvanTec. It has several hundred employees in British Columbia based out of Langley but includes a large manufacturing unit also, in Maple Ridge. They build specialized modular units for the oil and gas industry.

Also, we have Ron Madill, who is the owner of Spruce Hollow Heavy Haul, from Abbotsford, and from Maple Ridge, Bill Christianson, who’s an engineer with Supreme Structural Transport also based in Maple Ridge.

Would the House please make them feel welcome.

S. Chandra Herbert: I would like to join with the Minister of Health in welcoming Dr. Julio Montaner and Irene Day from the B.C. Centre for Excellence in HIV/AIDS, which is housed in my constituency of Vancouver–West End in the excellent though very old hospital, St. Paul’s. I just want to thank them for their leadership from the ’90s on up.

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They’ve led the way in British Columbia and indeed have helped lead the way across Canada and the world. Let’s hope that the Canadian government adopts their programs and brings them nationwide, as Brazil, China and other nations are doing.

I want to also acknowledge Keits Morton, a young man who…. I thought how to introduce him. I would just say that probably the greatest honour would be that he’s an engaged citizen, something that we should all aspire to be and something that more of us need to engage in — citizenship.

Welcome Keits and, certainly, welcome Dr. Montaner and Irene Day.

M. Bernier: I think everybody in this House knows and would agree with me that we wouldn’t be able to do what we do if it wasn’t for the dedication and hard work of the staff that we have. So it’s a real pleasure for myself to introduce one of our staff members helping on the government side, with us today. I think he’s really excited to be in the House with some friends, to be watching question period here live, rather than on TV in his office. Will the House please make Blake Hodson welcome.

G. Kyllo: I’m proud to welcome Kathleen De Vere and Graham Stark to the House today. They’re local small business owners in the field of video production. For the last eight years they’ve run the Desert Bus for Hope video game Internet telethon. This event started eight years ago in a parent’s basement and, in their first year, raised $22,000. This year they raised a total of $635,000 just last week. The Minister of Technology and Citizens’ Services and myself were privileged to actually join them on set last week.

The charity supplies toys and games to children in hospitals and domestic violence shelters, including the B.C. Children’s Hospital and Victoria General. Tens of thousands of volunteer hours have gone into putting on this fantastic event. I’d like the House to make Kathleen and Graham feel very welcome.

A. Weaver: As my friend from Peace River South mentioned, we can’t do what we do without the help of our constituent and legislative researchers, but they can’t do what they do without the help and support from their parents and their friends. On that note, I’d like to introduce the father and two very close friends of a legislative representative, a research assistant in my office: Terry
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Hartrick and Dan and Susie Taft, who are here in the gallery today. Would the House please make them welcome.

B. Routley: We have a couple of steelworkers here in the legislative precinct that I want to acknowledge. I want to start with Leo Gerard, the amazing president of the Steelworkers, who has done so much to strengthen the union movement, throughout North America but actually worldwide, in his work. I know it’s more than nine unions that have joined with the Steelworkers. I know that the Steelworkers are also, ironically, one of the largest unions in wood, and I happen to know something about that. I’ve grown to have great admiration and respect for the work that Leo does.

I want to thank you on behalf of all working people for the incredible work that you do to make things better for working people all over the world.

Tom Harkins, an amazing…. He spent decades working at the Nanaimo mill. He spent decades representing working-class people and doing things like pounding in signs at federal and provincial elections for candidates — some more deserving than others. But I appreciate your work on my behalf, even when I wasn’t your first choice.

On the other hand, both of these people are incredible in terms of helping working people everywhere, and on behalf of them, I want to thank them and welcome them here to the Legislature.

Ministerial Statements

WORK OF JULIO MONTANER IN
HIV/AIDS RESEARCH AND TREATMENT

Hon. T. Lake: Fellow members of the Legislative Assembly and guests, earlier today I was extremely privileged to have the opportunity to acknowledge and honour a British Columbian who has made extraordinary accomplishments in the field of HIV and AIDS research, treatment, care and prevention — Dr. Julio Montaner. Dr. Montaner is joining us here today in the Legislature along with the director of operations for the B.C. Centre for Excellence in HIV/AIDS, Irene Day.

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The Centre for Excellence is a world-class organization that we are fortunate to have right here in British Columbia. As director, Dr. Montaner has been responsible for spearheading tremendous advances in the treatment and the prevention of HIV and AIDS, helping British Columbia become the only province where new HIV infections are consistently declining.

But even before that, as head of the St. Paul’s AIDS clinic, Dr. Montaner was making a remarkable impact in the field of HIV/AIDS research and care. He was often the driving force in the development of what is known as the drug cocktail to treat and manage HIV/AIDS, giving HIV-positive individuals the opportunity to live longer and healthier lives. That cocktail has since become known as the highly active antiretroviral therapy, or HAART, and it has become the international standard of care.

Thanks in large part to the work of Dr. Montaner, an HIV diagnosis is no longer a death sentence. HAART can lengthen and improve the quality of life of those with HIV, adding up to 5½ decades of life. HAART treatment also reduces the viral load of those with HIV to virtually undetectable levels, thereby dramatically reducing the likelihood that they will transmit the disease to others.

This key aspect of HAART treatment is the principle behind the made-in-B.C. treatment as prevention strategy, also pioneered by Dr. Montaner. This strategy reduces the spread of HIV by introducing HAART at the earliest possible stage following an HIV diagnosis. This strategy virtually eliminates HIV- and AIDS-related morbidity and mortality and, at the same time, significantly reduces the spread of HIV.

In fact, treatment as prevention has decreased HIV/AIDS–related mortality by more than 95 percent and new infections by more than 66 percent. It’s a strategy that has been adopted internationally — by France, Spain, Brazil, Argentina, the United States and China.

In September of this past year the United Nations launched its 90-90-90 treatment target, which has a goal of ending the AIDS epidemic, worldwide, by 2030. That target is modelled after B.C.’s treatment as prevention strategy and would not be possible without the work of Dr. Montaner and the B.C. Centre for Excellence in HIV/AIDS.

Dr. Montaner has deservedly been the recipient of countless awards and accolades, including — just to name a few — the $100,000 Knowledge Translation Award from the Canadian Institutes of Health, two separate five-year $2½ million awards from the National Institute on Drug Abuse at the U.S. National Institutes of Health, induction into the Royal Society of Canada, an honorary doctor of science from Simon Fraser University, the Order of British Columbia, the Albert Einstein World Award of Science and the Queen Elizabeth II Diamond Jubilee Medal.

Just this year it was announced that he will be inducted into the Canadian Medical Hall of Fame. Today I was honoured to add to this list by presenting him with a certificate of recognition on behalf of all grateful British Columbians.

Next year, in 2015, Vancouver will host the eighth International AIDS Society Conference on HIV Pathogenesis, Treatment and Prevention. Of course, Dr. Montaner will serve as the conference’s co-chair.

In a few days, on December 1, we will observe World AIDS Day, a day that is about more than simply raising awareness about HIV and AIDS. It is a time for the world to unite in the fight against the spread of HIV.

As we join together in this fight, British Columbians can be particularly proud of the B.C. Centre for Excellence
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and Dr. Julio Montaner. I ask that all of my fellow members join me in thanking Dr. Montaner for his tremendous contribution not just to our province but, in fact, to the entire world. [Applause.]

J. Darcy: On behalf of the official opposition, I want to say ditto to everything the Minister of Health said today. All of us who work in public service and all of us who aspire to community service hope to make a difference, some small difference, in people’s lives. But very few can say, as Dr. Julio Montaner can say and we can proudly share in saying: because of his work, literally tens of millions of people’s lives have been saved, not just in Canada but around the world.

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It’s very rare that this House rises as one to salute someone, but Dr. Julio Montaner is certainly one of those rare individuals who deserve it. I understand from reading a profile of Dr. Montaner just a few months ago that some of his early work was inspired by his father in his native Argentina.

Dr. Julio Gonzalez Montaner, who treated people with tuberculosis, advised his son, I gather, that in treating a stubborn respiratory disease, he shouldn’t use just one respiratory drug; he should use several. That’s something that Dr. Montaner took forward in his early work with HIV/AIDS, working at St. Paul’s Hospital, treating people who came with what was then an unknown disease in British Columbia and Canada and around the world. It was later understood to be a particular type of pneumonia that came from HIV/AIDS, and eventually, as a result of that work, it came to be recognized.

Years later Dr. Montaner built on that earlier work and innovated several new treatments. As the Minister of Health has explained, that triple therapy became the standard of care around the world, and for what was once known as a death sentence, the incidence of this disease plummeted by 90 percent around the world.

It truly is the case that because of that work that Dr. Montaner has done with his colleagues and the brilliant work that he’s now carrying out at a national and an international level to treat the infection and to prevent the spread of HIV/AIDS, truly tens of millions more lives will be saved in this country and around the world.

He is truly a great British Columbian, a great Canadian, and we are honoured and humbled by his presence in this House today. Thank you to Dr. Julio Montaner.

Introduction and
First Reading of Bills

BILL M213 — BRITISH COLUMBIA
OIL AND GAS ACTIVITIES
AMENDMENT ACT, 2014

D. Donaldson presented a bill intituled British Columbia Oil and Gas Activities Amendment Act, 2014.

D. Donaldson: I move that a bill intituled the British Columbia Oil and Gas Activities Amendment Act, 2014, of which notice has been given in my name on the order paper, be introduced and read a first time now.

Motion approved.

D. Donaldson: I’m pleased to introduce this bill that prohibits the conversion of natural gas pipelines to transmit oil or diluted bitumen by forbidding the Oil and Gas Commission from granting such an authorization under their permitting authority.

Natural gas pipelines can be converted to use for oil. It’s technologically possible and is central to proposals elsewhere in Canada. This bill addresses concerns of many in the province, especially First Nations and other residents of the northwest, that proposed natural gas pipelines could be converted at a future time to transmit diluted bitumen from the Alberta tar sands to the north coast.

In fact, the Dini ze’ and Ts’ake ze’, the Wet’suwet’en hereditary chiefs on whose traditional territories three natural gas pipelines are proposed, not only support this bill but guided me to introduce it to the Legislature. They are firm that the prohibition on converting these pipelines must be made in legislation, not through a watered-down process of regulation.

The drawbacks of that approach were exposed when the government unilaterally decided through an order-in-council last April to exempt new natural gas production facilities from the environmental assessment process. Outcry from the Fort Nelson First Nation led to reversal of that decision, but it highlighted how regulation can be created or changed at the whim of a minister behind closed doors.

This bill gives the certainty needed that natural gas pipelines will not be used to transmit diluted bitumen in an end run around the widespread opposition to Enbridge’s northern gateway project.

Whereas First Nations and northern residents support well-planned and diligently monitored industrial development on their natural landscape, the risks associated with the Enbridge project far outweigh the benefits. The Minister of Natural Gas Development promised to the Wet’suwet’en in a public forum in Moricetown that he would put legislation in place so natural gas pipelines could not be converted to transmit oil. I trust that in the spirit of reconciliation with First Nations, I will find support from the minister for this bill.

I move that this bill be placed on the orders of the day for second reading at the next sitting after today.

Bill M213, British Columbia Oil and Gas Activities Amendment Act, 2014, introduced, read a first time and ordered to be placed on orders of the day for second reading at the next sitting of the House after today.

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Statements
(Standing Order 25B)

SEA TO SKY GONDOLA

J. Sturdy: The Sea to Sky Gondola is the new west coast mountain experience that takes visitors on a scenic ride high above Howe Sound, British Columbia’s southernmost and North America’s southernmost fjord. After a protracted gestation, some protests and, ultimately, a location change, the gondola moved beyond being a proposal and opened this past May. Since then it has had an astounding 250,000 unique visits. Nearly 12,000 season passes have been sold, and the business by all accounts has exceeded all expectations.

The Sea to Sky Gondola takes visitors on a ten-minute ride up the northwest ridge of Mount Habrich, from a base station nestled between Shannon Falls and Stawamus Chief Provincial Park. At the summit lodge visitors can take advantage of walking trails, viewing platforms, a suspension bridge, a restaurant and, of course, a bar — all while enjoying the panoramic views of the Stawamus Chief, Sky Pilot, Mount Garibaldi, the Port of Squamish and the district of Squamish.

The gondola has proven to be a significant employer in the area and has shared its benefits by increasing visits to many other local businesses and attractions. Not only does the gondola open up subalpine walking trails to seniors and individuals with disabilities; it also provides improved access to the Shannon Creek basin for hikers, climbers, snowshoers and skiers. Previously difficult-to-reach trails are now just a ten-minute ride away. Next steps may include a Grouse Grind–type hiking access.

This is truly one of the most outstanding new attractions in the entire country. I want to encourage everyone who hasn’t already done so to head for Squamish, and after a quick — or not so quick — visit to the Britannia Mine Museum, hitch a ride on the Sea to Sky Gondola, for you will certainly not be disappointed.

SOUTH VANCOUVER LITTLE LEAGUE

M. Elmore: In communities across B.C. and Canada kids look forward to the opening day of Little League baseball. I was an avid player in northern Manitoba, and I loved the game so much that I would sleep with my glove under my pillow and run out to the field after school. Little League baseball brings communities together, and this year a special team from my constituency did just that and more.

The South Vancouver Little League was established in 1956, and for the first time ever they became our provincial and national champions and went on to play in the Little League Baseball World Series.

Members, please join me in congratulating the 2014 Canada Little League champions, the South Vancouver Majors All-Stars — 12 team members, which includes two sets of twins: No. 1, Michael Oyhenart; No. 2, Daniel Suarez; No. 9, Matthew Suarez; No. 3, Nico Cole; No. 6, Rod Betonio; No. 10, Josh Matsui; No. 11, Emma March; No. 15 Evan March; No. 12, Ryan Mah; No. 13, Vicarte Domingo; No. 18, Joseph Sinclair; No. 18 Magic Mackenzie; their manager, Brian Perry; and coaches Rick Domingo and Jonathan Mackenzie; and special coach Ed O’Leary.

Thanks also to the volunteers and parents who supported them all the way.

The South Vancouver Little League is one of the smallest leagues in B.C. and across the country. When I was first elected, in 2009, they told me they were the only league in the Lower Mainland that didn’t have a batting cage yet, so I worked to help them get one, because I knew the kids needed it to become champions.

The first group to use it and benefit, at a young age, is this group that went on to the World Series, or as they call it, baseball Disneyland. Past president Graham Randell tells me that they knew they had a special group of talented kids when they were just five or six years old. Baseball was their number one sport, and they never left the park. They always wanted to be playing.

They’re all continuing to do that in the intermediate, peewee and bantam divisions and are also now helping with coaching. They will also be speaking in schools to encourage more kids to get involved. Next year the South Vancouver Little League will be hosting the B.C. provincial championships from July 18-26, so I invite all of you to come down to Memorial Park in Vancouver-Kensington to watch some great baseball.

ASANTE CENTRE FOR
FETAL ALCOHOL SYNDROME

M. Dalton: Fetal alcohol spectrum disorder is an umbrella term that describes a broad range of effects that can develop if a fetus is prenatally exposed to alcohol. Due to impaired brain development, individuals with FASD may struggle with learning, communication, attention, memory, reasoning and social skills.

In 1993 a group of concerned citizens in Maple Ridge banded together to take action around FASD and established the Fetal Alcohol Spectrum Disorder Society for British Columbia, a non-profit organization.

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The society’s efforts eventually led to the creation of the Asante Centre, which specializes in providing assessment, diagnosis, family support services, education, training and research. While public awareness and prevention are key to addressing FASD, the Asante Centre recognizes that individuals and families who live with this invisible disability will experience a multitude of challenges throughout their lifetimes. Over the years the Asante Centre has expanded its services to address autism spectrum disorder and other complex development needs.
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Recently I attended a retirement dinner for the beloved pediatrician Dr. Kwadwo Ohene Asante, who is one of the key individuals behind the centre’s work — hence, the Asante Centre. Dr. Asante was the first physician to bring FASD to the forefront of Canadian medicine, while practising in northern B.C. I should also mention here that Dr. Asante’s colleagues, including executive director Audrey Salahub, were inspirational in building the original founding team of founders, including public health nurse Pam Munro and Julianne Conry, a registered psychologist.

Supported by the government of British Columbia, the Asante Centre in Maple Ridge is now internationally recognized and has provided training in Canada and countries abroad, including New Zealand, Australia and the French Réunion Island.

PROTECTION OF
RESIDENT ORCA POPULATION

G. Holman: I rise today to speak for constituents of mine who cannot represent themselves in this House, the resident killer whales — or orcas — of the Salish Sea. The southern killer whale population has declined to its lowest level since 1985, with only 78 members remaining in the pod. That’s two fewer members than in 2001, when the whales were first proposed for listing under the federal Species at Risk Act. The hopes raised by the recent birth of a calf, which only occurs every five years for a female orca, have been dashed since the calf has disappeared.

These are remarkable animals by any measure. They live longer than many humans. They engage in complex sonar-based communication. They form lifelong families headed by matriarchs. Many of us have seen these magnificent animals at a distance, perhaps on a very expensive ferry trip. Some of us have had closer, more disconcerting encounters, as I did once on what seemed to be a very, very small sailboat.

Imagine these awe-inspiring creatures forever extirpated from the Salish Sea. In 2008 Fisheries and Oceans Canada released a recovery strategy for northern and southern resident killer whales, but despite federal legislation and a related court order, there have been no meaningful actions to address the key risk factors for these whales.

About 40 years ago dozens of orcas were ripped from their pods and sold to aquariums around the world. As a result of this and our inaction since then, resident orcas are on the brink of extinction.

I believe most members of this House would agree that we must act urgently to avoid the destruction of these iconic animals.

CROHN’S DISEASE
AND COLITIS AWARENESS

Moira Stilwell: As you have heard, according to Crohn’s and Colitis Canada, our nation has the highest rates of Crohn’s and colitis in the world. More than 10,000 cases are diagnosed each year. That works out to 28 cases every day.

These diseases affect one in every 150 Canadians and cost the nation $2.8 billion a year in medical expenses and missed work. Crohn’s and colitis are chronic infections that inflame the lining of the gastrointestinal tract and inhibit the body’s ability to digest food and absorb nutrition. Symptoms can include loss of weight, appetite loss, nausea, fever, anemia, fatigue, diarrhea and severe abdominal pain. The incidence of both diseases has been rising considerably since 2001, particularly in children under the age of ten.

While there is no cure for Crohn’s disease, drugs and sometimes surgery can provide relief. Colitis can be controlled with medication, and in some cases by removing part of the colon. These conditions affect all aspects of life and can be very difficult to talk about, particularly because of the stigma surrounding bathroom diseases.

But there are organizations working hard to change that. In March our government provided $150,000 to Crohn’s and Colitis Canada, B.C.-Yukon division, to help them continue to improve research capacity, raise awareness and provide education and resources to people living with these diseases. Crohn’s and Colitis Canada helps sufferers take control by learning about their disease and the treatments available, and connects them to other people suffering from the same condition so that they can provide guidance through experience.

[1415]

This is important work. By supporting their efforts, we can help patients overcome embarrassment, get the diagnosis they need and empower them to take charge of their health and quality of life.

Salt of the Earth SCREENING
IN HONOUR OF BUDDY DeVITO

K. Conroy: The Kootenays are full of historical events. The showing of Salt of the Earth at the theatre in Castlegar on December 15 and 16, 1954, was one such event. The blacklisted Hollywood movie, which was seen by 900 viewers, brought the spectre of McCarthyism to rural B.C. The movie depicted the story of a violent 15-month-long strike in the early 1950s at the Empire Zinc mine in New Mexico and highlighted the powerful role of the miners’ wives in winning the strike.

The showing six decades ago was sponsored by Local 480 of the International Union of Mine, Mill and Smelter Workers. The union, who represented the workers at Cominco in Trail, felt the story needed to be told and, in spite of the risks, did just that.

With this 60th anniversary the historic film was shown at the same location on November 16. The United Steelworkers Local 480 was again a sponsor, as were other Steelworkers locals and progressive people in the area, except this time there was no fear of reprisal for either supporting the show or attending.
[ Page 5604 ]

Ron Verzuh, born in Trail and raised in Castlegar, took the initiative to bring Salt back to the Kootenays. As a historian and Canadian writer specializing in labour history in B.C. and the Pacific Northwest, Ron was thrilled to welcome a full house to remember our history, as well as to dedicate the showing to Buddy DeVito, who was at the Castlegar theatre back in 1954.

Buddy passed away October 29 at the age of 94. He was born and raised in Trail, working in the family shoe repair business until he enlisted in 1941. He returned to Trail in ’45 and resumed working in the family business, retiring in 1985. Buddy was a life member and past president of the Royal Canadian Legion, an alderman and mayor of Trail and chair of the regional district of Kootenay-Boundary. He also worked for six years in Sudbury, Ontario, for the Mine, Mill union there.

He was a strong proponent of peace and a heartfelt socialist, never failing to make his opinions known wherever he travelled. Buddy is survived by his longtime partner, Maureen Mitchell, his four children and seven grandchildren, as well as by all of us who knew him and will miss him, as he truly was the salt of the earth.

Oral Questions

REPORTING OF EXECUTIVE COMPENSATION
AT KWANTLEN UNIVERSITY AND ROLE
OF ADVANCED EDUCATION MINISTER

J. Horgan: What a difference a few months makes in this Legislature here in the province of British Columbia. Six months ago when we on this side of the House raised questions around the integrity of the Minister of Advanced Education, he characterized the accusations as outlandish.

“Outlandish,” he said, when the member for Vancouver–Point Grey laid out fairly comprehensive evidence of wrongdoing by the board and by the executives at Kwantlen University.

Then a review was done and, as with all B.C. Liberal reviews, “We’re going to get to the bottom of this,” they declared in the press release. Months went by, and a review was tabled — a review that provoked the comments “troubling” and “disturbing” from the Minister of Finance — but again, no action beyond that.

This week, when we tabled further information in this House, the Minister of Advanced Education said that he had recused himself from any involvement in anything to do with Kwantlen University, which is what you would want from your Minister of Advanced Education I would expect.

Then we discovered that there was not just knowledge of wrongdoing by the Kwantlen board but actual participation by the Minister of Advanced Education. The Minister of Finance rose on Monday, and he said: “The minister, in conveying information to Mr. Mingay, in no way tried to disassociate himself from the role that he played as a volunteer member of that board.” That was the end of the quote.

In light of the information that’s now become available to the minister, does he still stand by his assertion that the Minister of Advanced Education was not only complicit but an active participant in violating guidelines?

[1420]

Hon. M. de Jong: I will repeat for the hon. member what I think I said inside this House and know I said outside of the House. That is, confronted by the documentation that was tabled by the opposition, acknowledging that it is relevant to the matter that Mr. Mingay was examining and rendered a report around, it seemed appropriate to me to provide that information to Mr. Mingay and to ask him to analyze whether or not he had seen it before and, if he has not, whether or not it alters either his findings or the recommendations that flowed from his report.

Madame Speaker: The Leader of the Official Opposition on a supplemental.

J. Horgan: When the Mingay report, round 1, was tabled, we on this side of the House called for the resignation of the Minister of Advanced Education. We were hopeful that he would recognize a British parliamentary tradition and he would do the right thing.

Unfortunately, he didn’t do that. In fact — making matters worse — the judgment of the Premier was drawn into question when she said the following: “The Minister of Advanced Education is committed to making sure that the rules and the intent of the rules are followed. I have spoken to him and have absolute confidence in him and his ability to serve as Minister of Advanced Education.”

That was when it was just troubling and disturbing. That was just when “Well, he must have known about it, but he wouldn’t have really had any hand in it.”

Now we’ve tabled evidence in this place. We’ve refreshed the memory of the Minister of Advanced Education. He was complicit and involved in circumventing the rules of this place. He deceived the Legislature. He deceived the Minister of Finance. Most importantly of all, he deceived the people of British Columbia.

So again, to the Ministry of Finance: how can you possibly continue to defend this man?

Hon. M. de Jong: I have heard the Leader of the Official Opposition quoted, I hope correctly, in describing the work that Mr. Mingay undertook as being good work and professing a measure of reliance in that work. I agree.

I also agree that it is entirely appropriate to take documentation that has been presented in this chamber, that does bear on the matters that he was reviewing, and have
[ Page 5605 ]
him examine those documents for relevance and to determine whether or not they would alter any of his findings or any of the recommendations that flow from that.

But I can also say this, unhesitatingly. I have also watched the Minister of Advanced Education undertake his duties as a minister of the Crown and apply himself diligently and exhaustingly to the task of furthering the interests of students in British Columbia and the interests of the institutions they attend for training and educational purposes.

Madame Speaker: The Leader of the Opposition on a further supplemental.

J. Horgan: Again, it certainly wasn’t my intention to ask questions of the Minister of Finance today. I had other bear in mind. But the issue at hand, I think, speaks directly to the Minister of Finance, to the Government House Leader. I would think as one of the senior members in this place, he would understand that integrity doesn’t involve do-overs. You have it or you don’t.

The question at hand here is…. Misleading once, shame on us. Misleading twice, I would suggest: shame on you and shame on the government of British Columbia. I don’t believe that the people of B.C. want their children to emulate an individual who says it’s okay to circumvent the rules as long as you’re not caught, and then when you’re caught, to blame bad briefings for the circumvention.

It’s not okay to say: “I had no idea I was so intimately involved.” It doesn’t work that way in the real world. It shouldn’t work that way in cabinet.

Again, I just have to say to the Minister of Finance: I don’t know how you can defend the behaviour of the Minister of Advanced Education.

Hon. M. de Jong: I have also been here long enough to know that the search for perfection is destined to be a search in vain.

[1425]

The Minister of Advanced Education has not ducked responsibility. He has in no way endeavoured to run from the responsibility he had as a member of a board that, in Mr. Mingay’s report, was found to have not conducted the procedure in accordance with all of the requirements.

Although the issue here around disclosure…. Mr. Mingay makes clear in his report the matters were disclosed in one instance but not in conformity with the PSEC guidelines.

The Leader of the Opposition, by virtue of the comments he has made here today in his questioning of me, I think impliedly says it is unforgivable. It is unforgivable not to recall every single e-mail that a person has sent two years….

Interjections.

Hon. M. de Jong: That is what the Leader of the Opposition is saying — that it is an unforgivable sin not to be able to recall with precision every single e-mail that someone has sent and no longer has access to, two years after the fact.

That measure of perfection may exist somewhere in the mind of the Leader of the Opposition. I happen to know that it doesn’t exist in reality. I also happen to know that there are members sitting on the opposite side of the House who know very well that that measure of perfection does not exist in reality.

DISCLOSURE OF INFORMATION BY
ADVANCED EDUCATION MINISTER TO
KWANTLEN UNIVERSITY INVESTIGATION

S. Robinson: We’re not searching for perfection, but we are looking for honesty. On Monday we learned that the Minister of Advanced Education misled a government investigator and misled a Finance Ministry investigation. On Monday the minister told this House that “the fullest of information available to myself was provided for Mr. Mingay.”

To the Minister of Advanced Education, if the minister was sincerely trying to provide Mr. Mingay with the fullest of information, why didn’t he tell Mr. Mingay that he conducted business as the Kwantlen vice-chair using his RCMP e-mail account and that Mr. Mingay ought to look at his past correspondence there?

Hon. A. Virk: It’s certainly no secret that I was, indeed, a member of that national police force, as I was a volunteer member of that board. I certainly shared with Mr. Mingay all of the information I had to the best of my ability.

In terms of those e-mails, this is some 3½ years ago — the incident the members opposite refer to. I didn’t have access to those e-mails at the time of Mr. Mingay’s interviews, and similarly, nor do I currently have access to those e-mails.

R. Fleming: As of this week all British Columbians know, including government members of that side of the House, that the Advanced Education Minister misled a government investigator and misled a Finance Ministry investigation.

Let’s go back to Monday. On Monday we had quite a spectacle in this place. We had quite a spectacle in this place on Monday, where we saw the Minister of Advanced Education, for 90 minutes, huddle with the Minister of Finance after he faced questions and before he went out to face the media, when he finally went out and acknowledged that he was heavily involved in the Lavack contract negotiations.

He said that the emails had suddenly “refreshed” his memory about his role in those negotiations. I want to
[ Page 5606 ]
ask the Minister of Advanced Education this, because he’s asking British Columbians to believe that pathetic excuse.

[1430]

Let me ask him, in his career as an RCMP officer, whether he would have accepted this same excuse from a suspect that he was investigating who had suddenly refreshed their memory as a convenient way to describe the withholding of evidence?

Hon. A. Virk: As I’ve noted a number of times before, the e-mails that the members across the aisle refer to are a string of e-mails from some 3½ years ago. I did not have access to those e-mails at the time of the interview with Mr. Mingay, nor do I have those today.

Certainly, I do not have the specifics of those strings of e-mails. Indeed, 3½ years ago my recollection…. I certainly wish my recollection was better, that I had a perfect memory. But not having access at that time or now — that’s a fact.

S. Simpson: We know the bar for a minister is set high in terms of holding to the integrity of the office. We know that in most instances a minister who is under investigation would step aside until that investigation was completed. We know that in this case the minister has chosen not to do that, and the Premier has chosen not to ask him to do that.

Can the minister tell us that if the bar is set high, if he really wants to resolve this, did he not feel any obligation, when Mr. Mingay was appointed, to have at least called Kwantlen and said: “I want you to make every piece of paper available to Mr. Mingay that involved me”? If he had done that, these e-mails would have been made available.

Why didn’t the minister support Mr. Mingay’s work and, in fact, ask for all the Kwantlen information to be made available?

Hon. A. Virk: Well, the member opposite knows that Mr. Mingay was asked by the Minister of Finance to conduct the review. As such, it wasn’t appropriate for me to provide direction to that university or Mr. Mingay on how to conduct that review.

REVIEW OF KWANTLEN UNIVERSITY
INVESTIGATION AND ROLE OF
ADVANCED EDUCATION MINISTER

K. Corrigan: I find these answers unbelievable. We have a minister who approved and devised a plan to break compensation rules. He was, further, actively involved in a plan to break the disclosure rules and to hide that from government. When there was a review, he didn’t provide critical evidence in his possession to the investigator. He denied any wrongdoing or minimized his wrongdoing in this House. Finally, on Monday he misled the Minister of Finance and misled this House again when he claimed that he’d provided all the relevant information.

Madame Speaker: Member. I would ask that member to withdraw that final comment.

K. Corrigan: I withdraw, Madame Speaker.

On Monday, as the Minister of Finance has already said, he wrote to Mr. Mingay and asked him to review the new e-mails we tabled in the House and determine if they changed the conclusion in his report. What the Finance Minister didn’t do either is he didn’t ask Mr. Mingay to get to the other missing correspondence from the minister’s RCMP e-mail account. The Finance Minister didn’t ask Mr. Mingay to access Kwantlen’s archived VP academic search records binders — the very place the last set of e-mails were found.

To the Minister of Finance: why should we have any confidence that Mr. Mingay’s do-over investigation will be any more thorough than his last one?

[1435]

Hon. M. de Jong: Well, it’s an interesting observation from the hon. member. Quite frankly, it does — whether she wants to admit this or not — impugn in a very negative way Mr. Mingay, someone who has served governments of all political stripes and who the Leader of the Opposition has described as doing good work.

Mr. Mingay will take the material that has been provided to him. He will not happily seek direction from me or anyone else about the manner in which he conducts that ongoing review and assesses the relevance for the report he has prepared.

Look, I get that this doesn’t fit with the political narrative that the members opposite want to weave. But the material has come to light. The material has been provided to the author of the report, and the responsible thing is to allow the author of that report to conduct the work that he needs to do.

Interjections.

Madame Speaker: The Chair will hear the answer and the question.

Please proceed.

COMPLIANCE OF PUBLIC INSTITUTIONS
WITH EXECUTIVE COMPENSATION RULES

K. Corrigan: Once again, we have, in the answer from the Minister of Finance, a government which is pretending to be honest and open and is doing the very opposite by limiting the terms of reference.

That the Minister of Advanced Education misled a Ministry of Finance investigation is one very unacceptable matter, but the fact that he was part of a broader
[ Page 5607 ]
practice of circumventing government compensation rules is another. Yesterday we learned that we can add the B.C. Cancer Agency to the list of public institutions that are finding creative ways to get around executive compensation limits.

This morning the opposition asked the Auditor General to conduct an audit of how many public institutions are skirting PSEC compensation rules. Will the Minister of Finance ask the Auditor General to do the same?

Hon. M. de Jong: Well, is there any better example of what’s really taking place here? The member stands up and expects to be taken seriously by referring to a transaction that the government disclosed in a press release in July of this year.

The member stands up and concocts this whole conspiracy theory about what’s taking place at the Cancer Agency. That whole incident was discussed. It was revealed by the government during the tabling of the public accounts. Oh, yes, the public accounts that proved something else the opposition said couldn’t happen — the confirmation of a balanced budget.

I get that the hon. member and her colleagues have purged the memory of that day from their minds, but it happened. It was real. That issue was dealt with in a fiscally responsible way, and it confirms how serious the government is about all agencies adhering to the wage and settlement guidelines that we have in place through PSEC.

REVIEW OF
HEALTH MINISTRY INVESTIGATION
INTO ALLEGED PRIVACY BREACH

J. Darcy: Let’s talk about another review that is also casting a shadow on the integrity of this government. The Premier said she wanted to get to the bottom of the wrongful terminations of eight health researchers who made British Columbia a leader in drug evaluation. She said that in her heart she felt that these firings were heavy-handed.

[1440]

Now we have further confirmation that she, in fact, didn’t mean any of this because her office was part of these terminations.

John Dyble and Lynda Tarras designed a review with one purpose: to protect the Premier’s inner team. They put Ms. McNeil in a box that she, quite simply, couldn’t get out of. Now Graham Whitmarsh, the man that the Premier blames for this whole affair, has told Ms. McNeil that he won’t participate in that review.

To the Minister of Health: is the minister going to put protecting the Premier ahead of his duty to his ministry by condoning John Dyble’s concocted review, or will he finally, finally send this matter to the fully independent review that it deserves?

Hon. T. Lake: We know that in some circumstances some members that were working for the Ministry of Health were treated in a way that we have considered inappropriate. We have admitted that. Some people were treated in a heavy-handed way. We have acknowledged and apologized for that.

The Leader of the Opposition said that we besmirched people’s reputation and character. Is it just me, or is the irony lost on the members of the opposition? They continue to do that day in, day out to highly dedicated public servants in the province of British Columbia — throwing out people’s names, besmirching their reputations on a daily basis in question period.

Ms. McNeil will do her review. I look forward to seeing that review December 19.

A. Dix: The minister says “heavy-handed,” as if that’s some sort of defence for the government. They fired seven dedicated public servants. Six of those firings — six of seven — have been withdrawn and rescinded. The word isn’t heavy-handed. The word is incompetent. The word is mean. The word is cruel.

On top of that the Premier’s closest public service adviser, Mr. Dyble, and one of her closest political advisers, Ms. Mentzelopoulos, approved the decision to taint these researchers with the suggestion of an RCMP investigation that did not exist — a decision that could not, at the time, have been supported by legal advice, a political decision by people in the Premier’s office.

It’s why we need an independent review, an independent review that does more than, as the government says, identify process improvements related to HR management but does what they promised, which is get to the bottom of the matter; a review that deals with more than six months of this scandal, the full 29 months of the scandal.

One that compels John Dyble and Graham Whitmarsh and the Minister of Finance and Margaret MacDiarmid to appear before the inquiry. One that relies on documents other than those provided by the government itself. And one that puts Rebecca Warburton, Ramsay Hamdi, Dave Scott, Malcolm Maclure, Ron Mattson, Bob Hart, Bill Warburtonand, of course, Roderick MacIsaac at the heart of the review and not an overthought.

Will the government today announce a real public inquiry into this disgraceful affair?

[1445]

Hon. T. Lake: I think what’s disgraceful is the characterization of dedicated public servants. Their characters are being assassinated every day in question period. The Leader of the Opposition and the other members of the opposition claim to have secret knowledge, and they are the judge and jury on dedicated public servants every day here in question period.

Ms. McNeil is an independent labour expert doing a review of HR processes that were utilized. She will be and is interviewing people in the public service. It’s unfortu-
[ Page 5608 ]
nate if members outside of the public service do not wish to participate. We look forward to her report December 19. It will be given to the assistant Attorney General. We look forward to making that report public.

MULTI-MATERIAL B.C. RECYCLING
PROGRAM IMPACTS AND OVERSIGHT

G. Holman: Recycling services on the southern Gulf Islands are provided by non-profit societies operating small depots. These societies have informed the Minister of Environment that the one-size-fits-all funding formula of Multi-Material B.C., MMBC, will cover less than one-third of the real cost of operating these depots. What this means is that recycling depots on the Gulf Islands will cease operations within two years and 25 employees will lose their jobs unless MMBC provides fair funding.

The question I have for the minister: will the minister ensure that MMBC lives up to its legislated responsibility and ensure the necessary funding to keep these recycling depots operating?

And given the problems that MMBC is creating throughout the province, not just for non-profit recycling depots but for small businesses such as Syntal, which just closed operations on the Saanich Peninsula, will the minister ensure that there’s an independent review by the Auditor General of MMBC? Will you ensure that that’s authorized today?

Hon. M. Polak: First, let’s remember that we began in British Columbia with a tremendously successful program of recycling all across the province. But there was one notable difference from the way in which things will now begin to operate under MMBC. That is that under the old way of doing things, it was the property tax payer who paid for their blue box services at their home. As a result of the move to make those who produce packaging and printed paper cover the costs of this disposal, the CRD, for example, will receive annual funding of $5 million.

It is a new program. It will take time to make sure that things are functioning adequately for everyone across the province. But make no mistake. We believe that the people who produce the packaging should pay to get rid of it.

[End of question period.]

Point of Privilege
(Reservation of Right)

E. Foster: I rise to reserve my right on a point of privilege.

Madame Speaker: So noted.

Petitions

G. Holman: I want to present some petitions here from the southern Gulf Islands, the same islands that won’t be receiving adequate funding to keep their depots operating.

It reads as follows: “We, the residents of Pender Island” — and also there’s another petition here from Mayne Island that has already been presented to the minister; about 1,800 in all — “urgently request that the Minister of Environment enforce the recycling regulation, schedule 5, in order to ensure that Multi-Material B.C. provide full funding for recycling depots in isolated rural communities that handle the material for which MMBC is now legally responsible.”

[1450]

Orders of the Day

Hon. M. de Jong: Continued committee stage on Bill 6.

[1455]

Committee of the Whole House

BILL 6 — LIQUEFIED NATURAL GAS
INCOME TAX ACT
(continued)

The House in Committee of the Whole on Bill 6; M. Dalton in the chair.

The committee met at 2:59 p.m.

On section 11.

B. Ralston: The question I have on subsection 11(2) is the reference to “the following rules” that apply in applying section 251. Can the minister explain briefly what that means?

Hon. M. de Jong: I try to say all of the provisions in the act are important, and where they adopt provisions from the federal legislation, that is always important.

[1500]

There is added importance here where, from a practical point of view, it’s understood that we will need specific rules for non-arm’s-length transactions. For example, when we talk about transfer pricing, the rules around non-arm’s-length transactions become very important.

They are required for the purposes of the act where specific rules for control apply — for example, in claiming a reserve or what the determination of controlled persons is, based on the meaning of “control” under the federal act.

As I said, it’s also anticipated that there will be a large number of non-arm’s-length transactions. And under the federal act — and this is where the inclusion of these provisions is important — any persons that are considered related parties operate at non-arm’s-length as well as those that factually deal at non–arm’s length. This legislation, through section 11, adopts those principles.
[ Page 5609 ]

B. Ralston: I take it from the focus on this in the act that the minister or/and his staff were anticipating that this particular plethora of non-arm’s-length transactions is something that is likely to manifest itself, given the corporate nature of some of the proponents that are global companies, which are integrated companies that control all the steps of the supply chain, whether it’s the upstream, the actual extraction of the gas, the pipelines, the liquefaction and the shipping.

Is that why, in this act, there is a particular focus and concern about non-arm’s-length transactions?

Hon. M. de Jong: Yes, precisely.

Sections 11 and 12 approved.

On section 13.

B. Ralston: We’ve spoken about the reference to trusts earlier. In the survey of the corporate landscape and anticipating the way in which proponents may structure their business for tax purposes, is it anticipated…?

Obviously, this is, I suppose, not entirely within the knowledge of the government. But analyzing the industry and the proponents, is there a sense that trusts will be used as a method of managing the payment of tax in a way so as to minimize it in a way that other structures may not? Is that the reason for the concern about trusts in the language that’s attached in this particular section?

Hon. M. de Jong: I think I understand the member’s question. If I can answer it this way, hopefully it’ll be helpful to him. He has correctly, I think, described the importance and, dare I say, preoccupation with the provisions in the previous section relating to non-arm’s-length transactions.

By contrast, I don’t think there’s anything that leads us to believe there will be a widespread use of trusts. But there is a recognition that it is possible and that we need provisions to be able to deal with that eventuality if it were to occur. I would differentiate section 13 and its relevance from section 12 and its relevance in that way.

[1505]

Sections 13 and 14 approved.

On section 15.

B. Ralston: This seems to be a fairly significant section in the sense that it talks about how a taxpayer’s net operating income and net operating loss from an LNG source are to be calculated.

Can the minister explain, I suppose, beginning with (a)…? Perhaps a brief description of the difference between net income, net operating income and net operating loss would be in order first, before explaining the operation of this provision on those incomes.

Hon. M. de Jong: The member is correct. The manner in which these amounts are calculated is important, and there is a precise methodology for so doing.

I wonder if the member would be content if I offered at this time in response to say that the answer to the question about net income is probably best dealt with at section 54, where there is a description of how that is calculated. Similarly, net operating income is defined particularly at section 23 and net operating loss at section 24. We’re coming up to those two sections rather quickly.

The general purpose of this section is to ensure that it is understood the act is to be interpreted in the manner that ensures there is no double counting of any amount in computing income inclusions, expense deductions, tax reductions or tax paid. That’s the principle that is sought to be enshrined here.

Then the member’s very legitimate question about how these amounts are calculated might be better examined in the specific sections where they are dealt with, as I’ve indicated.

Sections 15 and 16 approved.

On section 17.

B. Ralston: This part begins, I think, the heart of the matter: the application of the tax and liability for tax. I know that my colleague the member for Oak Bay–Gordon Head said that he had some questions on section 18, I believe. I may have incorrectly recalled the section number, but I believe it’s in this part that he will be asking some questions.

Can the minister then explain…? I think the starting point of January 1, 2017, is fairly clear. We’ve examined the definition of an “LNG source.” It is conceivable, then, given this definition, that a single integrated operation may have for tax purposes a number of different LNG sources? Is that what the implication or the possible ramifications of this particular section are? It ties tax to “in respect of each LNG source.” Perhaps the minister could just explain how that will work.

[1510]

Hon. M. de Jong: The member has identified the two main provisions, the date being fairly self-explanatory.

The only correction I would make to the description the member offered, which I think essentially gets it right…. You are obliged to file a return for each facility. The only correction I might make is — the hon. member referred to integrated operations — that you need not be an integrated operation to have more than one facility and, therefore, file more than one return. It’s conceivable that you could be simply the owner of facilities, for example, or, I suppose, of land on which facilities are lo-
[ Page 5610 ]
cated, and all of the manifestations that we went through. But you need not be an integrated operator to perhaps be obliged to file more than one return.

B. Ralston: An LNG source is not required to be resident in British Columbia and not required to have a permanent establishment in British Columbia. Is that correct?

Hon. M. de Jong: The taxpayer is not obliged to be a resident.

B. Ralston: Some of the legal commentary suggests that that, I suppose, legislative effort or legislative intent may be subject to some challenge. Perhaps the minister can just explain how such a broad interpretation is legally sustainable should that be challenged in the future.

Hon. M. de Jong: Can the member maybe be a little more specific about the nature of the challenge he’s referring to in some of the commentary? These statutes are frequently examined from a variety of considerations.

B. Ralston: The example that was provided to me was a non-resident third-party marketer of LNG who — even though it’s a non-resident of British Columbia and does not carry on business or have a permanent establishment in the province — could still be required to pay LNG tax.

Hon. M. de Jong: The analysis, of course, that has taken place prior to and during the drafting of this relies, first and foremost, upon the interpretation of the constitution in the powers it affords the province to apply direct taxation for activities within British Columbia, which is why the bill is drafted in the way it is, tying everything back to activities at an LNG facility. Therein lies the basis upon which the constitutionality of the bill and the jurisdiction to apply the taxation measure are established.

Section 17 approved.

On section 18.

B. Ralston: This section sets out the rate, a tax equivalent to 3.5 percent of the taxpayer’s net income. There’s a calculation of net income that we’ll deal with in more detail later.

[1515]

Can the minister explain how this percentage of 3.5 percent was arrived at? I think the minister has been fairly candid and his colleague the Minister of Natural Gas has been fairly candid that there was initially a proposal that this tax be up to 7 percent, so certainly there was a range considered. I note the minister’s insistence, and I think this is accurate, that he did say up to 7 percent; he didn’t say 7 percent. I accept that.

Certainly the range has come down quite a way. Again, I think that was explained in a very open and candid way.

Can the minister explain, then, what considerations at the policy level went into making that calculation?

Hon. M. de Jong: Thanks to the member, who, I think, has phrased his question in a fair and generous way. I would say, broadly speaking, two factors account for what we have before us in section 18, or two processes, if you will.

One relates to an ongoing body of work that led to the initial identification of the range that the member referred to, up to 7 percent. That is the analysis our officials have been doing relating to our competitiveness vis-à-vis other areas of the world who are either engaged in this activity or vying to be engaged in this activity.

One of the things…. I think the member probably has it, and I won’t burden him with more paper. But at the time we announced the details of the taxation measure, I think on the day the bill was tabled, we presented some charts and materials that are our competitiveness comparator. Yes, it is our work. Is it perfect? Undoubtedly not, and the member may have criticisms of some of the assumptions. Nonetheless, that is the work that has helped inform us, in part, with respect to the settlement of a particular rate.

The second body of work — ongoing work — is the discussions that have taken place with proponents as a means of understanding their cost structures and the elements that are perhaps unique to investments taking place in British Columbia.

Art or science? I hesitate to say, but those, I can say, are the two areas where work is focused and have taken us, ultimately, to a point in time where we were obliged to make a decision about a rate that we thought was appropriate, that met the test we had set for ourselves about a fair return but also a fair return for British Columbians that also rendered us competitive.

I won’t go on at length about this being one of many features that contributes to that competitiveness matrix, but clearly this is one element, and an important element.

B. Ralston: In the budget this year — the minister, obviously, will be intimately familiar with the budget — there was not a…. It was a topic box in the budget which set out some goals and likely the range that we spoke of, of revenue to be derived from this tax.

[1520]

Now, we’ve spoken earlier of the competence and efficiency and insight of senior staff in the ministry, so presumably this wasn’t a decision taken lightly. I’m wondering to what degree there was modelling done of prospective revenue, given that range, in settling not upon the number that’s in the bill but the number that preceded the bill, the topic box that was in the budget documents last spring.
[ Page 5611 ]

Hon. M. de Jong: I’ve got some material that I’m happy to share with the member that relates to modelling at various rates — at 7 percent, at 5 percent, at 3½ percent. No question, the reduction in the rate reduces the revenue that will flow to the Crown in the event that projects proceed, construction begins and completes, and LNG, liquefied natural gas, begins to flow.

I have some material, for example, for a typical — well, I’m not sure there is such a thing — two-train facility. I think most of our modelling revolved around two-train facilities. I’m happy to share that with the member to demonstrate how we think the LNG income tax at 7 percent would have operated, how it would operate at 5 percent and on the graduated basis included now in the bill.

B. Ralston: Certainly, the minister and his staff, and the government generally, are aware and have expressed their awareness repeatedly of the requirement to be internationally competitive. That awareness would have obviously factored into the position that was taken in the spring.

I do recall…. I think it’s a study by Ernst and Young, which was commissioned as part of that process, which said that the spring document, the range that was proposed in the spring, was indeed competitive, and they compared some North American jurisdictions — Louisiana, Texas, Oregon, I believe, maybe one on the east coast and Australia as well.

I suppose what I’m leading up to, and I don’t think this is any secret, is…. I know the minister has given a public answer about this, but I’m just wondering, given the relative short passage of time, seven months, what changed so dramatically. When you had all this work about competitiveness — a very thoughtful, highly professional public service preparing the documents — disclosed publicly, what confidence did you begin to lose that you didn’t have when you tabled a document with the budget?

Obviously, the budget is the paramount and most important document in the government process. This is a fairly significant position that was taken last spring. I’m just wondering how that decision came about, and then we’ll perhaps pursue why it changed.

[1525]

Hon. M. de Jong: I’m trying to answer, particularly the member’s question. I would say that broadly speaking, initially at least, two important features guided the conversation and the internal discussion — and he’s right, an important one — and a vigorous discussion ensued internally.

The evolving forecasts around revenue, around the price LNG is fetching internationally…. And that continued to evolve through the spring, summer and to some extent, now, although you begin to see reports and forecasts that have the price levelling out and actually coming back somewhat from lower levels. That would have been relevant. It was certainly relevant in the minds of proponents who we were engaged in discussions with.

Secondly, the realization that for some LNG taxpayers, because of how they were structuring, they would be paying the higher-tier rate as opposed to the 1½ percent almost immediately, given the manner in which their operations are structured. That, too, bore some relevance to the discussion that was taking place. All of it factored into, again, overall questions of competitiveness relative to what was happening elsewhere in the world in the industry — in an evolving industry.

A. Weaver: Coming back to the revenue projections, I’m wondering if the minister would be prepared to also send me the same information that would be sent to the critic.

Hon. M. de Jong: Happy to provide the hon. member with the same material.

A. Weaver: Is there a ballpark figure as to the projected revenue from a two-train system, say, in terms of the next decade, that the minister is able to share, from the LNG tax rate?

Hon. M. de Jong: There is, and again, I’m happy to provide it to both members. Both members will appreciate that there is a series of assumptions tied to those calculations — the size of the operation first and foremost amongst them. We have that material, and I’m happy to share it with him.

A. Weaver: In the revenue projections that were done, one of the key assumptions would be the future price — or certainly the future spread — of natural gas prices between Asian markets and North American markets.

In 2012 the deputy minister did a presentation at the Generate B.C. conference, where he put forward in this presentation, publicly available, 20-, 30-year projections of an LNG price spread maintaining about the same as it was then. That is $16 to $6 or…. It was a $12 spread maintaining essentially in perpetuity.

My question to the minister is: in the LNG projections, was this same data used — that is, an assumed $12 to $13 spread in the price of natural gas in Asia versus British Columbia? Or if not, what LNG price spread was assumed, or what variables were assumed in this regard?

[1530]

Hon. M. de Jong: What I can provide the member with — and I was casting my mind back — is a chart, a graph that actually projects, or projects as best we could, based on available information, what we believe the spread will be going forward, out to at least 2020, and we may have it for beyond there.

It does not, I can tell the member — and I’ll provide it to him — show a constant differentiation. It shows a
[ Page 5612 ]
growing differentiation as you move out past 2015 and into 2020. Rather than me trying to describe it to him, better for me to give it to him.

A. Weaver: We don’t have access to PowerPoint in the chamber, unfortunately. The one I have before me is showing the projected change going from 2012 to 2046, with the price increasing in North America to just under $8 per million Btu and in the Asian market to just under $18. That difference, basically, was constant in time.

The minister is, then, suggesting that different projections of future natural gas prices were used, such that the spread actually increased with time? My question, on top of that, is: what would happen to the price projections, and has the government actually undertaken modelling studies to reflect the new Asian market price for natural gas, as signed through the recent China-Russia agreements and the U.S. agreement that came through the Gulf Coast, where substantially lower than present prices were done for long-term contracts?

[D. Horne in the chair.]

Hon. M. de Jong: A couple of things come to mind, one being…. Well, firstly, the information upon which we have been relying, the modelling, is ongoing. As intervening events occur and influence that price, part of the challenge, not just for government but proponents themselves, is to assess what the impact of that is going to be going forward. There are lots of theories about what that will be.

It probably represents the single biggest challenge, I would say, certainly for government but also proponents who are making decisions around the investment of billions of dollars, who are gazing into that crystal ball and asking themselves: what is the product I produce going to be worth in those marketplaces?

[1535]

There’s an added feature to this that is relevant for the member to have in his mind when he considers revenue forecasts. That is the fact that under the terms of the act the pricing point exists here in Canada at a point at the facility. That, of course, doesn’t mean that the price in an Asian market, for example, is irrelevant, but the forecasts are tied to the pricing point here in Canada.

A. Weaver: A final question on this track, then. In light of the uncertainty in future revenue projections from the LNG tax rate, here set at 3.5 percent and then increasing to 5, does the government in its revenue modelling have an estimate as to…? Well, first off, will the money from this be put into general revenue, or was the plan to put it into a prosperity fund? If so, what time frame does the government believe it needs to have in order to actually get $100 billion into that prosperity fund from this 3.5 percent LNG tax regime?

Hon. M. de Jong: I understand both the relevance and the importance of the question. I hope the member won’t think I’m trying to evade either.

That question is answered directly as part of a budgeting process in circumstances where we are confronted by the happy circumstance of having the revenue flow in. We’ve just done the second-quarter update. I won’t refer to that, because it doesn’t really touch on the future. But in February we’ll introduce another budget that will have budget forecasts for the next three years, and the member will want to watch closely.

In the event that a final investment decision has been taken and we are in a position with some certainty to begin tracking construction activity and ultimate production, part of the challenge for government will be to start revealing those numbers and project how we think they will begin to flow and how we intend to allocate the money. We won’t be in a position to do that, though, and won’t do that until we have secured a final investment decision and see the industry actually taking steps forward — where this legislation that we’re dealing with actually becomes relevant in a practical way.

B. Ralston: The minister said that one of the considerations that led the government to set the rate at 3.5 was that one proponent, I think he said, in discussions or negotiations with them, I suppose, thought that they would be paying the 3.5 percent right away, yet the structure of the act is very different. There’s an initial 1.5 percent payment, which is deductible against paying the 3.5. Then there’s also an investment account, from which a statutory rate will be calculated. That will be excluded, as I understand it, from the calculation on which the 3.5 percent is made.

Can the minister explain, then, how that representation was made, apparently by one of the proponents in discussion with the government — and at least explain it? I mean, I appreciate there may be some commercial confidentiality — that’s usually what the government relies upon in these matters — but given that the minister has said that, I think there’s some obligation to put some flesh on those bones.

Hon. M. de Jong: Again, it’s a fair question. I don’t think that in answering I’m revealing any deep, dark trade secrets.

[1540]

In circumstances where a taxpayer actually hasn’t constructed a facility — and that is conceivable; they own the gas flowing through and become a taxpayer on that basis — they wouldn’t have a capital investment account to draw down before paying the higher rate. There likely would not be a period of paying the tax at 1½ percent.

Depending on who the taxpayer is and how their involvement in the liquefaction process is structured, it’s conceivable that they could be paying the higher rate
[ Page 5613 ]
and wouldn’t have the larger investment account to draw down first, in the way that an integrated operator would who has built an LNG facility.

B. Ralston: As far as I understand, none of the proponents are in a position where they already own a pipeline. I suppose the only one that might be somewhat in that range would be the Woodfibre operation where the natural gas pipeline to Vancouver Island runs through their property. But that proposal is operating on a scale that is very, very different from the major proposals in Kitimat and Prince Rupert.

As I understand it, there is — with that possible exception of Woodfibre, which is an anomaly — no proponent in that position. They ultimately may build a pipeline, and they may build a liquefaction plant. But in terms of a pipeline to deliver gas to a liquefaction plant, I’m not aware of that.

Perhaps the minister could enlighten me.

Hon. M. de Jong: To the member’s point, I’m not actually sure that Woodfibre qualifies as an exception either.

Here’s the difference. If you’ve got an LNG plant, there is certainly a set of assumptions that attach to the owner of that plant, but it’s quite conceivable that the owner of gas will take gas through that plant and will become a taxpayer. They will pay a rent or a toll or whatever to the owner of the facility. But as the owner of the gas, and if that is all they own, they incur a liability related to the transformation, the conversion of the gas, and do not have the capital investment account to draw down.

That’s the circumstance. It doesn’t relate to the “proponents” who are talking about constructing a facility. It relates to others who may make use of that facility.

B. Ralston: I believe that was mentioned in some of the commentary — that there is a disparity in the application of the tax in the exact way that the minister has described.

Is the minister concerned that some…? I mean, obviously from the perspective of revenue, he’s probably, understandably, not concerned. Would that not be a problem in the sense that some will pay the 3.5 percent almost immediately and others, given if you’re making an investment of $10 billion to $15 billion, won’t be paying the 3.5 for some time? Is that a problem, or is that just the revenue design and the minister is content with that?

Hon. M. de Jong: Two things. Primarily, of course, the act and the structure remove uncertainty. I suppose one could also make the point that the agency that doesn’t have the capital investment account to draw down also hasn’t made the multi-billion-dollar investment necessary to construct the facility and is, therefore, not dealing with whatever costs are associated with sourcing that amount of capital.

B. Ralston: This is a qualitative question, I suppose. I’m only dealing with it because the minister has mentioned it.

[1545]

To what extent was this a notion that some LNG sources would be paying the 3.5 percent — or if it were higher — right away? To what extent was that determinative in the decision to lower the range from up to 7 percent down to 3.5 in the rather dramatic way that that occurred when the legislation was unveiled?

Hon. M. de Jong: I think the fairest way I can characterize it is that in the course of conversations and discussions with proponents, the question of how the structure and the tax regime would interrelate came up. I wouldn’t want to leave the impression with the member or the committee that this was a determinative factor relating to the rate that was ultimately set and is before us in the section.

The question of the degree to which the overall structure and the rate might influence behaviour or the manner in which investors structure their operations would certainly have come up. But I don’t want to overemphasize the degree to which the question we are dealing with today ultimately determined the rate before the committee.

B. Ralston: Another question as to whether this may have been a factor or not. Under the B.C. Mineral Tax Act, Crown royalties are deductible against federal income tax, as I understand it, and also British Columbia income tax. As I understand it, the federal government has not taken a position on whether the LNG tax will be deductible against federal income. That’s leaving aside the separate question about accelerated capital cost allowances.

Has the minister engaged in any discussion or his officials engaged in any discussion with the federal ministry of finance about whether that will come about, or is he aware of any discussions that proponents may have had with the federal ministry of finance about the tax becoming deductible against federal income tax?

Hon. M. de Jong: I don’t have a definitive answer for the member. We strongly suspect, of course, that there are discussions taking place between the proponents and the federal government. The member has mentioned another area that has engaged their attention vis-à-vis the federal government. We’ve not received a specific advance ruling from the federal government to this point, and I’m reluctant to offer an interpretation of how the federal Income Tax Act would purport to deal with this in response to an application for deductibility. It’s probably premature for me to offer an opinion, unwise for me to offer an opinion, on that matter.

B. Ralston: But surely, if the tax is deductible against federal income tax, that’s a major advantage, just as the shifting to the fast write-off of the depreciation process.
[ Page 5614 ]
Rather than 25 or 26 years, it was down to seven, as it is in manufacturing — and have the plants classified as manufacturing facilities. That would be a significant financial advantage. It’s been reported publicly that the companies are seeking that.

[1550]

As part of the discussions — I hesitate to call them negotiations, although sometimes that language is used by different government ministers — would that not be an important factor to consider in designing where to set the rate?

If the tax is going to be deductible, or if there are other deductions from federal income tax and depreciation allowances that are going to be put in place, would that not be an important factor to know in the dealings with the proponents?

Obviously, that could have a very material effect in terms of the outcome. But it seems to me that the minister is saying we’re setting this rate, and the proponents may gain further financial advantages down the road to minimize their tax, and that’s fair enough, and that won’t affect our decision now. It seems to me a bit shortsighted on behalf of the province and upon the potential revenue not to make those inquiries.

Hon. M. de Jong: I don’t know that I’m going to offer the member a satisfactory answer in acknowledging this. There are matters over which we have constitutional authority and jurisdiction and matters that we do not. They are together all relevant, particularly from a proponent’s point of view. They remind us constantly and validly, in my view, that they are examining and considering this matter on the basis of an overall cost structure and are less concerned with who’s getting what share of the tax take.

Yet we are also obliged to be forthright with proponents, as I will try to be here, and say we are not in a position to offer up federal currency and certainly not in a position to provide any measure of assurance about future treatment from the federal parliament.

I don’t, again, want to leave the impression with the committee that we have provided those assurances. I can say that, with respect to the capital cost allowance issue, we have been supportive of the advances made by proponents and those who wish to be engaged in the LNG sector who have made submissions to federal officials. We have lent our voice to those submissions but, again, have not been in a position to say to proponents or guarantee them a particular outcome.

B. Ralston: I appreciate fully that the minister can’t guarantee the outcome of ongoing negotiations, as they appear to be, or lobbying with the federal government. But the minister has acknowledged, and I think the Minister of Natural Gas Development has acknowledged here in the House, that the government is negotiating with proponents project development agreements. I think the Premier has announced that they will be completed by November 30. That’s this year, 2014.

It would seem to me to be a reasonable provision in such an agreement, granted that the provincial government doesn’t control the tax treatment that the federal government may decide to give these projects.

[1555]

Would it not be prudent in such a negotiation to at least address that in a project development agreement, where it would materially alter, in a favourable way to the proponents, the revenue that they get — contrary to the position that they’re in now. It would seem to me to be a reasonable contingency to include an agreement.

Can the minister tell the House whether, in those project development agreements with the leading proponents who are the ones that are closest to final investment decision, those kind of considerations are taking place?

Hon. M. de Jong: To the member, he’s correct. There are ongoing discussions. In fact, in the case of the project development agreements, I would say you could probably in a certain limited way apply the term “negotiation.”

But I would say to the member that those project development agreements are being discussed bilaterally, between the proponent and the province of British Columbia as a jurisdiction, and we are not purporting — to this stage at least, to this point — to roll into those agreements provisions that would necessarily, to be meaningful, involve making the federal Crown a party to the agreement.

That’s a longwinded way of saying that the negotiations, discussions, thus far relating to project development agreements have been between the proponent and the province and have not engaged the direct involvement of the federal government.

B. Ralston: Well, I don’t think I’m suggesting that the federal government be directly involved in those negotiations. Clearly, they’re between the major proponents and the provincial government. What I’m asking is…. It would seem to me to be a reasonable contingency that, in the event that there is change in the federal tax structure that benefits proponents, there be some contingency plan about what alternatives are available to the province of British Columbia in terms of the revenue that it receives.

The Minister of Natural Gas Development is quoted as saying that these project development agreements will “write the fiscal structure in stone.” I think that’s how he put it. Clearly, proponents are looking for certainty, but if changes benefit them, is there no provision for recapture by the province of some of the revenue that may accrue to the proponent? They get protected on the upside by having certainty on the tax rate in the agreement, to the degree to which you can fetter the parliamentary sovereignty.

[1600]

Be that as it may, there doesn’t appear to be, in what the minister is saying, any effort to look out for the public interest in just such an event that I’m speaking of. It may very well happen. It may not, but certainly, surely, that can be written into an agreement as a contingency. “If this happens, then this will happen.” That would seem to me to be the currency of negotiations.

Hon. M. de Jong: Not to be argumentative — I don’t mean to be, but I also want to be forthright with the member and the committee. There are a variety of contingencies that may well impact on both the economics of these projects and therefore the revenue that accrues to the Crown and the province and the right of British Columbia.

The project development agreements that are being discussed and, we hope, eventually finalized as between the proponent and the province of British Columbia will focus on those matters and those areas over which those two parties have responsibility and jurisdiction. I understand the member’s view that the agreements should include, in his view, contingency provisions that take account of other circumstances.

I’m certain that one can imagine circumstances in which that might be advantageous to the proponent or advantageous to the province, but I can only tell the member directly and in a forthright manner that on a very complicated engagement, the focus has been those matters that fall within the jurisdictional authority of the province and the authority of the proponent to influence.

B. Ralston: From what the Minister of Natural Gas Development has said, the rate of 3.5 percent — this rate, I’m suggesting or concluding, based on the language he used — will be written into just such an agreement, a project development agreement. That’s what the proponents are looking for — this 3.5 percent rate to be locked in and on January 1, 2037, up to 5 percent. So those two rates that are referred to in section 18 would be locked into that agreement.

I don’t understand the reluctance of the minister, on behalf of the province, to say: if there are changes in the total…. And it is a question of competitiveness. The rate is being set at a rate that presumably meets those criteria.

If it becomes more favourable to the proponent by changes in the federal tax structure, why shouldn’t there be some opportunity on the part of the province to take advantage in some negotiated way, an understood way and foreseen way, of the extra revenue? I don’t understand why the minister, on behalf of the government, would sit on his hands in that situation.

Hon. M. de Jong: Well, I’m not sure that I’m going to be able to satisfy the hon. member. I think I understand his point, and I think he disagrees with mine, which is that we are engaged in discussions that are endeavouring to ascertain the overall cost competitiveness of this industry. Tax policy, certainly, is a component of that.

To take another example that the member has alluded to: the desire of proponents to seek an adjustment on the capital cost allowance.

[1605]

If I followed the member’s logic, it would be to include a provision that were the federal government to see fit to do that for their own purposes in terms of adding to the competitiveness of Canada as a jurisdiction, we would include a provision that would claw that back or adjust the benefits and take some of the benefits. As attractive as that might be from a treasury perspective, it is (1) speculative and (2) seems to me would be counterintuitive to the efforts the industry would make to seek more favourable tax treatment from the federal government.

I think I understand the point the member is making, and I take it he disagrees with the approach that we have pursued in taking a very complicated set of discussions and focusing on those matters that are within the direct constitutional responsibility and authority of the province, but that is what we have done thus far.

B. Ralston: I reject the language that the minister has chosen to characterize my comments with — clawing it back. What I’m saying is that this is indeed a feature of fiscal stability agreements in countries around the world. They’re not unknown. They’re very common in many, many countries in the world. When a proponent makes a significant capital investment, there’s a sense that they want some kind of fiscal stability, and that’s what’s being offered in this agreement. But many of those agreements — not all, but many — do offer the opportunity to at least reopen and negotiate if there is a significant reduction in tax to the proponent.

It seems to me only logical that if the proponent is seeking certainty and no increases, they shouldn’t necessarily benefit entirely and completely from any reductions in tax without some negotiations to share the additional revenue there.

I can see the minister is rejecting that. I’m not suggesting a clawback, although I suppose that is on the minister’s mind, given some of the discussions about social welfare policy that we hear here where there is just such a thing. I’m not suggesting 100 percent clawback. I’m suggesting that a negotiation where some of the reduction in tax and, therefore, the increased profit be shared, given that these are natural resources that belong to the Crown.

But I understand that the minister is rejecting that and that provisions like that won’t be included in these agreements, which are, as the Minister of Natural Gas seems to think, being conducted in secret and will not be disclosed publicly, if ever. I’m not sure. He talked about commercial confidences and how revealing them could crash the stock market and things like that.

These are major investments, and the tax treatment, if it changes through federal action, seems to me to be a
[ Page 5616 ]
legitimate subject for discussion. But clearly, the minister has rejected that, and I’ll move on.

The package that was set out in the spring in the budget with the range up to 7 percent, then the change. Would it be fair to characterize that as a negotiating position that was set out in the budget, and then the minister went out to discuss it, or his officials, with proponents? Was that a best-efforts position — this is what the regime should be — or was it intended as a negotiating position with a view that down the road it would be lowered in the manner than it’s been lowered? Certainly, it has that appearance, at least to some.

[1610]

Hon. M. de Jong: Thanks to the member. I’ll just quickly revisit a couple of his parting comments on the issue we were canvassing. I think it would be incorrect or inaccurate to take my earlier comments as representing a definitive position on all manner of stability measures that might be included in a project development agreement. If I left that impression with the member, then I regret that. That was not my intention.

As well, I would say this, because I think the member has a legitimate interest. The Minister of Natural Gas, I think, has been incorrectly characterized as suggesting that the project development agreements will not be available in the public domain. That is not the intention.

They clearly have relevance and touch on matters that are important to British Columbians and involve resources owned by British Columbians. So the intention is quite the contrary. The member, as a result, I believe, will have an opportunity to render his own judgment on provisions contained within those agreements. I presume and hope that he will welcome that opportunity.

The question, then, that I think he’s put, in the context of our ongoing discussion around section 18, is whether or not it would be fair to characterize the reference to the range of up to 7 percent, which accompanied the tabling of the budget in February of this year as a bargaining or negotiating position. I would say emphatically that that is not the case.

First and foremost, the government’s intention was to address a desire that had been articulated by proponents and others alike that some indication be given as to the structure of the taxation regime that the government was contemplating — in this case, a two-tiered structure that related to an initial lower amount while capital investment costs were being paid down.

The objective, at the time of the budget, was to provide some insight into the approach and the thinking that was developing within government as to the structure that the LNG tax we now have before us, in all its voluminous magnificence, would entail. It was, I thought, appropriate to include with that some indication of the range which the government at the time felt might be appropriate, subject, as I said, to the time, ongoing analysis and ongoing discussion.

Lastly, I would say this, and I hope the member will accept this from me as being accurate and valid. At each step of the way when there was engagement with proponents on the matter of taxation policy generally and taxation rates in particular, the point was made that the sovereign jurisdiction for setting those rates rests with the Crown via deliberations in this chamber, and that that point has been and will continue to be emphasized at every step of the way.

B. Ralston: I thank the minister for those comments. Looking at subsection (b) — this is the provision where the rate rises to 5 percent in 2037 — can the minister explain what considerations went into (1) selecting the date and (2) selecting the rate — the date of January 1, 2037, and the rate of 5 percent?

[1615]

Hon. M. de Jong: To the member: as he might expect, several factors. Forecasting around price and price development would have been considered.

Another feature that I don’t want to suggest was completely absent from the consideration is the notion of picking a date that would create an incentive for proponents to move as quickly as possible to take advantage of an initial lower period. First movers in the establishment of this industry in British Columbia will, of course, enjoy a longer period of time at the lower rate than those who perhaps wait longer to establish their facilities. So there are two considerations, at least, that would have factored into the settlement on the date.

B. Ralston: I suppose one wonders, given the shift in what is described as market conditions between the spring and the fall and the change in the rate, what confidence one might have that that rate in 2037 responds to real conditions. Clearly, estimates have been off in a very short period of time. The natural resource industries are notoriously volatile. Is it really just…?

What I’m interpreting the minister as saying is that the increase in the rate was put far enough out that there was rate stability in an effort to induce final investment decisions. Would that be a fair characterization of what happened?

Hon. M. de Jong: I think, in part, that’s fair — providing certainty for that initial period of time at the rate. I wouldn’t want to suggest otherwise.

Sections 18 and 19 approved.

On section 20.

B. Ralston: The tax pool is an important concept for understanding the way in which the tax operates. I know that there were some graphs that were provided, but es-
[ Page 5617 ]
sentially, the pool that’s created is created in a couple of stages. The focus is to pay the taxpayer back for the tier 1 tax paid at the outset by reducing the tier 2 tax.

Essentially, the tier 1 tax functions as a minimum tax, if I can put it that way. I think that’s how it has been described to me. But it’s deducted against the higher rate, the 3.5 rate, until payments of all those 1.5 percent payments are exhausted. Is that a fair description of the tax pool?

Hon. M. de Jong: I think that’s an accurate description.

[1620]

Section 20 approved.

On section 21.

B. Ralston: The term “net operating income” — can the minister explain how that’s calculated? That’s an important step in the tier 1 tax, to calculate the net operating income.

Hon. M. de Jong: I can do one of two things. I can start to read section 23, or we can deal with it in a couple of sections, where the definition of “net operating income” is set out in fairly excruciating detail.

B. Ralston: I do note that the definition of “net operating income” is coming up. But perhaps the minister could just explain how the tax on that operating income…. This is to be differentiated from the calculation of net operating income itself, so if we leave a more detailed discussion to section 23, can he explain how the tax will be calculated, then?

Hon. M. de Jong: I’ll generalize, and hopefully, the member won’t hold me to task to account for the overgeneralization. But if we think of this in terms of revenues less allowable expenses, operating expenses, we get a sense of what net operating income is intended to represent.

The relevance here is how the section sets out the requirement to pay the tax on net operating income at 1.5 percent and provides that the 1.5 percent tax is not payable if the taxpayer deducts an amount from its net operating loss account balance or its capital investment account in that year. If there are no deductions from the net operating loss account or the capital investment account in a given year, then the tax at 3½ percent — and ultimately, the 5 percent rate — would apply.

B. Ralston: The 1.5 percent rate, tier 1 rate, is then ultimately deductible against the tier 2 tax payable until all of those payments are exhausted. Can the minister explain why that choice was made?

Hon. M. de Jong: The short answer is: we were seeking to structure this in a way that would see some cash flow to the Crown. A conventional construct on income taxes allowing, first, for the deductibility of capital expenses, for example….

[1625]

If that were to be applied in conventional terms, the Crown would be waiting a longer period of time before it saw any revenue flow via this instrument. The construct is designed purposely to begin to see a revenue flow to the Crown earlier than would otherwise be the case in more traditional income tax models.

B. Ralston: Essentially, that 1.5 is really a prepayment of the later tax. Have proponents suggested, or is it the intention of the government…? It’s unlikely that at that stage they would be profitable. Have they asked or made representations that interest be paid upon the amount of prepayments?

Hon. M. de Jong: I thought I heard the member include in his question a reference to something about payments when there was a loss. To be clear, this tax is payable — even this tier 1 tax is payable — only if there is a net operating profit. In a situation where there’s an operating loss, even this initial amount wouldn’t be payable.

Then the member had another question, but maybe he could remind me of it.

B. Ralston: Well, thank you for that clarification. That was an error in how I described it.

The balance of the tax pool, which is the 1.5 percent, then will ultimately be deductible against the 3.5 percent when the triggering events take place. Given that it’ll be calculated, it’ll be a tax pool, and it’ll be calculated forward, have proponents made representations that interest be paid upon the dollar value of the tax pool, given that it’s essentially a prepayment against a future tax?

Hon. M. de Jong: I am advised that the answer is no. But if they’re reading or watching these debates, maybe they will tomorrow.

B. Ralston: Well, certainly, that’s something that has occurred to some of the commentators. I don’t think it’s an idea that comes out of the blue.

I suppose that the next question is, then: if those representations were to be made, what would the minister say? Or is he unwilling, perhaps, on such short notice to take a position on that? As I understand the structure now, it’s not proposed to do that.

[1630]

Hon. M. de Jong: A bit of a discussion, as the members of the committee would see.
[ Page 5618 ]

The act does not contemplate the calculation and payment of interest in the manner the member, I think, is suggesting. Is that a matter that might be reviewable and require a secondary decision? It may well. At the moment the most direct answer I can give the member is that the act before us does not contemplate the payment of interest in the manner that he has described.

Section 21 approved.

On section 22.

B. Ralston: Section 22 deals with exemptions. Subsection (3) talks about “prescribed circumstances” and subsection (4) “prescribed person” or “prescribed class of persons,” giving authority to say that no tax would be payable under the act. Why is that provision in the act, leaving, presumably, the discussion to the cabinet to exempt payment? Is this a standard boilerplate clause, or is there some design in this that goes beyond just wanting to address every contingency?

Hon. M. de Jong: I think the explanation for the presence of the two subsections is as follows. The member has correctly identified the incorporation of federal exemptions in the earlier subsections. I’m reminded that a situation could arise where the federal government and the federal tax statute — I’m going to make up a term here — de-exempt someone that we wish to continue to exempt, in which case having the regulatory power to do so would be appropriate.

Section 22 approved.

On section 23.

B. Ralston: Net operating income and net operating loss are set out in sections 23 and 24. Just as a basic question, why was it felt necessary to have them in two separate sections? Why not just have the calculation of income in a single section?

[1635]

Hon. M. de Jong: I don’t have a magical answer. The advice I’ve received is that the drafters felt that setting out the definitions and calculation methodologies in separate sections was better from a drafting point of view and from a construct point of view, given the relative importance of the terms. I think it was a style of art in terms of the drafters’ preferences.

B. Ralston: Will each business or property that earns income from an LNG source be required to file a separate LNG tax return, or would amounts be aggregated for a facility as a whole, for example?

Hon. M. de Jong: If I understood the question correctly, the facility is king — or queen, whichever term is appropriate these days. You can certainly contemplate having multiple taxpayers attached to a single facility, and for each of those multiple taxpayers, they can draw income and expenses from multiple sources with respect to the return they file for that facility. Perhaps a bit unusual, but the tie-in to an individual LNG facility is fundamental to the operation of the act.

B. Ralston: Back to the case of the offshore company without a permanent establishment in British Columbia that falls under the jurisdiction of the act and has income. Obviously, there will be some administrative provisions in regulation. How is it envisaged that that will be administered and regulated and, I suppose, enforced if it’s not done?

Hon. M. de Jong: I’m actually glad that the member asked the question now because, at some point, I had meant to make this point. The administrative and enforcement provisions that are normally part and parcel of a bill and a statute like this do not appear. The administrative and enforcement provisions are in the midst of being drafted now, and the member will see those this spring when the Legislature reconvenes.

B. Ralston: Just so I’m clear, then. That will come in the form of separate legislation to administer the act? Or will it come in the form of regulations which are then made public?

[1640]

Hon. M. de Jong: An additional piece of legislation. That may well include some regulatory enabling provisions, but it would be a separate piece of legislation.

Sections 23 and 24 approved.

On section 25.

B. Ralston: I guess the question is…. This reiterates the reference again to “source.” The minister has explained, I think, in some detail a number of times that the effort is in the act to tie income to an LNG source. This seems to repeat provisions that are elsewhere in the definitions section. I’m just wondering what the added legislative increment is here? What is being said here that’s not said elsewhere?

Hon. M. de Jong: Thank you to the member. The terminology is technical and at times confusing. There are two types of sources: “LNG source,” which — the member is correct — we have talked about and discussed insofar as its relevance with respect to an LNG facility; and then this term, “source,” as utilized in the federal Income Tax
[ Page 5619 ]
Act, referring to multiple sources of income by a business. This section deals with the latter as opposed to the former.

B. Ralston: Thank you. That wasn’t clear to me, but then perhaps I’m not reading it closely enough. I’d confused the two. Other than adopting the language of the federal Income Tax Act — I think in division 2 that’s essentially what takes place, with some inclusions and exclusions — does this section do anything else?

Hon. M. de Jong: My advice is that this section is based on federal Income Tax Act concepts of what income from a source represents, and that’s the intention behind the section.

Section 25 approved.

On section 26.

B. Ralston: There are a number of sections in this division — 26 through 43. I’m told that this describes how the computation of net operating income is modelled on the computation of income under the federal act and is adjusted for specific inclusions and exclusions.

I understand the major adjustments or some of the ones we’ve referred to — income does not include interest, dividends or hedging gains; no deduction allowed for capital cost allowance; and no deduction for financing charges, including interest — all of which we’ve addressed earlier.

But a deduction is allowed for the investment allowance, based on the taxpayer’s adjusted capital investment account. Can the minister explain the thinking for allowing that deduction from net operating income?

[1645]

Hon. M. de Jong: I apologize. I want to make sure I’m answering the question that the member wants answered. I think we’re on section 26. I may have misunderstood the nature of the question, or maybe it’s a broader question relating to a series of sections in aggregate.

B. Ralston: I was perhaps attempting to move a little bit faster in looking at the division as a whole. If the minister is resisting that, I’ll revert back to going section by section.

The Chair: Perhaps we could deal with the division and then deal with the sections.

B. Ralston: We’ve discussed a number of adjustments that are different from the Income Tax Act that are deductions that are not permitted — interest, hedging gains and losses, financing charges, including interest. Those were dealt with in the definitions section. Those are not permissible deductions from net operating income.

There is a concept of the investment allowance. It’s related to the same type of mechanism in the Mineral Tax Act of British Columbia, where there is a prescribed rate of return on capital that’s then deductible before net income is calculated, as I understand it.

I just wanted to understand why the minister has chosen to proceed in that way, dealing with the investment allowance or the investment account. If he wants to answer it now or in connection with the later sections, that’s fine. It suits, for my purposes, dealing with it here with this division, because the division is basically telling how net operating income is calculated.

Hon. M. de Jong: I’m obliged to the member for the clarification.

We touched on this briefly when we considered some of the definitions, and the member then correctly pointed out that in other taxation legislation there are provisions for interest deductibility related to actual interest costs incurred by a taxpayer.

We have chosen, for reasons that I touched upon when we were discussing the definitions earlier, to adopt this approach, which sets out a methodology formula for calculating an allowance and does so on an equitable basis without regard for the individual circumstances of each taxpayer. The desire was to provide equal and, we felt, equitable treatment, and that, at its core, is what has led to the approach in the provisions contained within the division.

B. Ralston: Just to return to the investment account. The analogy is drawn by some of the commentators with the Mineral Tax Act. But there are provisions in the upstream, in the royalty treatment of natural gas itself, that are, I think, more closely analogous to what’s in the Mineral Tax Act.

[1650]

I’m wondering, when it comes to, particularly, facilities — we’ve even discussed that they may be classified as manufacturing facilities for the purposes of a capital cost allowance — why it was felt necessary to adopt an analogous concept from the Mineral Tax Act. I’m wondering why that is. Why is a statutory rate of return deductible from net operating income? I can see the advantage to the taxpayer, but I’m wondering, from the perspective of the government and revenue, why that decision was made.

Personal Statement

WITHDRAWAL OF COMMENTS
MADE IN THE HOUSE

J. Horgan: Hon. Chair, I rise to withdraw comments I made during question period earlier today.

The Chair: Thank you.

Debate Continued

Hon. M. de Jong: Probably two factors. I’d begin by
[ Page 5620 ]
suggesting that the objectives as between this act and the Mineral Tax Act are perhaps somewhat different. I will also acknowledge that what we were, in part, trying to achieve here is a measure of certainty for the Crown, recognizing that an alternative approach might incent behaviour that ultimately would have negative revenue consequences for the Crown.

Perhaps a bit of a trade-off, and the member might point that out. On balance, in assessing this we felt that creating certainty, creating equitable treatment — and certainty that preserved unto the Crown the right to set the rate — was an advisable and appropriate way to proceed.

B. Ralston: It seems to me that the structure of the income that’s being taxed is…. There were some changes that were made with the announcement about the deductibility of construction costs in advance. For some of these facilities, that’s huge.

Then there’s a period where there’s a lower rate, which is ultimately deductible. Then when you come to net operating income and you’re entitled to receive back as deductible all your payments on capital, only then do you begin paying on your operating income. It does follow the model of many jurisdictions in terms of dealings with mines.

[1655]

I’m wondering, if the industry chooses to characterize itself as a manufacturing facility for tax purposes, why this particular structure was set in motion?

Hon. M. de Jong: I hope this is helpful to the member in terms of further trying to articulate some of the differences and the rationale. I’m reminded, of course, that the mineral tax regime is a royalty-based regime. The member knows this. In this case, it is an income-based regime, so all of the implications of that difference also factored into the decision to structure the allowance approach versus the traditional financing charge deductibility approach.

B. Ralston: In section 26 the deductibility of capital gain and capital loss is not permitted to be calculated. Why was that decision made?

Hon. M. de Jong: I hope this helps. I’m reminded that the federal act includes capital gains and capital losses in the calculation of income. Pointedly and purposefully, the decision and our intention is not to include that in the calculation of income — therefore, the specific exclusion that the member has noted in the section.

The Chair: The committee will take a brief five-minute recess.

The committee recessed from 4:58 p.m. to 5:11 p.m.

[D. Horne in the chair.]

Sections 26 and 27 approved.

On section 28.

B. Ralston: This section deals with the valuation of inventory. The administrator, or the act, protects the power to deem whether transactions have occurred at fair market value.

I’m wondering, first of all, what is intended by an inventory. It excludes, in section 2, land. Is it capital and natural gas in the plant? That would seem to be — capital assets and gas in the plant. That would be the first question. Secondly, in subsection (5) what powers does it give to the administrator?

Hon. M. de Jong: Hopefully, I’ve captured the essence of the member’s question with respect to subsection (5).

[1715]

It is an important section, because relative to calculating the various incomes and valuation, this is the section that deems a disposition of LNG or natural gas liquids or natural gas at arm’s-length prices where no sale occurs or where a sale occurs between non-arm’s-length entities. So from the perspective of the valuation process and dealing with non-arm’s-length transactions, the deeming of a disposition, in the way contemplated in subsection (5), is very, very important.

B. Ralston: This gives the administrator, then, the power to deem what the administrator decides is a fair market price, as opposed to…. No? Well, a transaction takes place. The related parties — there’s a price that’s reported. Does the administrator, then, have the power to say: “Even though you’ve reported it as this price, I deem it to be this price?” Is that the scope of the powers here?

Hon. M. de Jong: As one might expect, this happens in various stages through this legislation. The section we’re dealing with here — 28, and particularly 28(5) — is that mechanism by which the deemed disposition occurs at arm’s-length prices where no sale occurs or where a sale occurs at non–arm’s length. In and of itself, that does not create any authority for the administrator to step in and substitute valuations. It deems a disposition. The taxpayer is obliged, then, to deal with that.

When we get into subsequent sections around transfer pricing, there is a mechanism by which the methodology or the calculations can be reviewed with a view to ensuring that the proper approach has been taken. That power is not created in section 28(5).

Sections 28 to 31 inclusive approved.

On section 32.
[ Page 5621 ]

A. Weaver: I’m hoping to see if my understanding of this section is correct. First off, I note that in subsection (c) it looks like it’s exempting a taxpayer from paying tax on the income from a disposition of an earned credit. At this point, I believe the idea here is to encourage companies to reduce emissions by not taxing income from that desired behaviour. As a first part, is that correct — why this is being done?

[1720]

Hon. M. de Jong: I believe that’s correct. If I might, I’ll repeat what I think the member said to ensure that we’re not at cross-purposes.

Recognizing that taxpayers are required to meet greenhouse gas emissions requirements under pertinent legislation, and that under that legislation taxpayers will earn, purchase or sell various types of compliance units, this section is intended to exclude income from the sale of an earned credit — but not other types of compliance units — from tax. I think that’s what the member said.

A. Weaver: The next thing. I understand also that the cost of purchasing account compliance unit would be deducted from income — so in the calculation of a taxpayer’s net income. I’m wondering whether the minister could confirm that that is correct.

Hon. M. de Jong: That is correct also.

A. Weaver: The point I’m trying to get at here is that I was going to put an amendment forward, but I don’t know that it would be in order because it would be changing a tax bill.

It seems to me that there’s an inconsistency here. On the one hand, we are letting in the disposition of an earned credit we are not taxing. That is not considered income. But at the other hand, when we buy it, it’s also considered a deduction.

It seems to me that consistency here would have…. I mean, you can’t have it both ways. It seems that, you know, we’re incentivizing behaviour by exempting income from the disposition of earned credits. We are also incentivizing the purchasing of compliance units, because we’re allowing that expense to be deducted from income in the calculation of net income.

It seems to me that we’ve double-incentivized, in some sense, as opposed to…. I think one of these should not be there. Either we allow them to buy a compliance and then use that as a business deduction but not also allow them to sell a credit and not claim that as income….

It seems that there’s an accounting problem here, where you should either have them…. It should be income here and not here, or it should be…. What I’m trying to get at is that it seems that there’s a problem with this legislation. There’s a lack of consistency in terms of the way the credits are handled — in that when you sell it and you earn income, that is non-taxable, but when you buy it, it’s a business expense. These are kind of lost in the tax world.

Is the minister open to considering amending this to actually eliminate one of those two so that there is a consistent approach, so as you go from not having any credits to sell to having to purchase credits, you’re not in this kind of discontinuity of taxation? I’ll leave it at that.

Hon. M. de Jong: The first point I think I want to make is that I’m not going to quarrel with the member’s basic analysis around what ordinary taxation legislation is built around, in terms of principles of allowing the deduction of expenses and taxing income. What I need also, though, to convey to the member is that the anomaly, if I can use that term, or variation from that normal principle that he has identified is not inadvertent.

[1725]

There is actually a purposeful policy position that lies at the heart of what he sees here, the desire being, through this taxation measure, to incent a certain type of behaviour in certain circumstances. In ordinary circumstances, the member’s analysis is correct. To the extent that this is a variation on that ordinary construct is also correct, but it’s not accidental. It is there purposely.

A. Weaver: My concern with this is that we’re creating a tax loophole inadvertently and that it may be that a company could sell to its subself in some sense. It could earn a credit and sell it to a wholly owned subsidiary somewhere. That sale…. They’re not going to pay tax. They’re going to write this off here, and they’re not going to pay tax here. There’s a tax sink, because the revenue can be lost through the transition of this process.

My concern is here: has the minister blocked the ability of companies to actually use this as a tax sink to avoid paying tax by transferring hot-air credits amongst themselves?

Hon. M. de Jong: What I was endeavouring to clarify and confirm for the member is to ensure that he could derive at least this measure of comfort. It may not be comfort for him. But it is that this is not inadvertent, which is a legitimate thing for members to be on guard for — that is, unintended consequences for complex legislation.

This is not unintended. But it also does not in any way alter the obligation that a taxpayer would face under corporate income tax law, either federally or provincially. The exemption or the alteration, if you will, applies only for the purpose of the LNG Income Tax Act, not other taxation instruments that a taxpayer is obliged to abide by.

B. Ralston: I’d like to move now to section 45, if that’s possible.
[ Page 5622 ]

Section 32 approved on division.

Sections 33 to 44 inclusive approved.

On section 45.

B. Ralston: A quick question on this one. This permits the deductibility of legal fees for “preparing, instituting or prosecuting an objection to…an assessment of tax.” Essentially, the government is subsidizing legal bills. Why was that considered necessary?

Hon. M. de Jong: I’m advised that the section exists to maintain consistency with the federal Income Tax Act. Who knew?

Section 45 approved.

On section 46.

[1730]

B. Ralston: This section sets out the operation of the investment allowance. There’s a formula in here for calculating it. I gather that the issue of the rate will be done by regulation. It’s not included in the statute, and maybe that’s because there’s a requirement to have some flexibility in adjusting the rate as things go along.

In the Mineral Tax Act, under the investment allowance rate, the rate is currently 1.56 because it uses a formula that is 1.25 times the bank rate set by the Bank of Canada. That’s in the definitions section of the Mineral Tax Act, and the reference is to the investment allowance rate.

Given that that’s in an act and has that certainty, does the minister expect the rate in this case to be the same?

[M. Dalton in the chair.]

Hon. M. de Jong: The short answer is no. It would be incorrect of me to suggest to the committee that we have settled on a comparable rate. It would also be premature for me to advise the committee that we have settled on a specific rate. That work remains to be finalized.

B. Ralston: Given that the desire, at least in part, of the legislation is to create investment certainty, it would seem to me that, given that it would be available every year, that return would be deductible from income, as I understand it, even after the capital account is completely repaid.

Could the minister explain the reason why it hasn’t been decided upon? Is that a matter that’s still being negotiated or considered? Will it be included in the project development agreements? Or is there some other reason why it hasn’t been settled upon?

Hon. M. de Jong: To the member, what I can advise him — and agree with him that there will be interest in what the rate is…. We anticipate that once the act, as we hope it will, receives royal assent, we will be in a position to finalize and publicize the rate within a matter of weeks.

B. Ralston: Can the minister explain at the conceptual level why an investment allowance wouldn’t be reduced when the capital investment account is reduced?

[1735]

There’s a difference between return of capital, which is accomplished through the capital investment account…. That’s returned. But the investment allowance persists as long as the LNG plant is open, as I understand it, and then that’s deductible from income that returns. I understand the principle about the capital investment account and the return of capital. But this is a return on capital that continues, as I understand it, after the capital investment account has been completely paid off.

Hon. M. de Jong: I think the concepts are different — as I understood the question — as it relates to the drawing down on the capital cost account.

In other circumstances, as we talked about earlier, you would be in a position to deduct your capital costs. You would also be in a position to deduct your financing charges. You still, through the mechanisms that are employed here, do the former. But in the latter instance, under this construct, you are not deducting your actual financing costs. You are provided with this allowance mechanism that, admittedly, goes on beyond the time, perhaps, when a debt has been retired.

We have discussed the rationale that gave rise to the adoption of this approach, but it’s probably two different concepts — the one relating to capital costs and deductions associated with capital costs, and the other dealing with financing charges or, in this case, a financing allowance.

B. Ralston: If the investment account is a clean way of just deeming a certain interest cost — rather than having to be subject to the calculations and assessing the individual calculations of the taxpayer — I can understand that, if that’s designed to compensate for the non-deductibility of interest and financing charges. But once the capital has been repaid, then what’s the rationale for continuing that deemed return on capital after all the capital is paid — if the rationale, as the minister suggested, was to offset the non-deductibility of interest?

Hon. M. de Jong: Perhaps where I may have a slight difference with the member is the automatic connection I think he might be making between capital cost deduction and the presence and deductibility of debt.

[1740]

Again, in a conventional circumstance where a corporation is deducting the cost of capital and at the same time enjoying deductions related to financing costs, long
[ Page 5623 ]
after they have exhausted their ability to deduct capital costs, for any number of reasons they may continue to be incurring financing charges, which remain deductible. This allows for a similar scenario under, admittedly, a different construct involving the investment allowance.

Admittedly — the member has pointed this out — the capital cost deductions may have been exhausted, but the investment allowance would continue in the way that finance charge deductions could well continue for a corporation under the more traditional regime. That would be my attempt at explaining and rationalizing the scenario that’s at play here.

B. Ralston: If that’s the case, then why is it only 75, the investment allowance? The reference in 46(1) is to 0.75, so it’s only 75 percent of the capital employed. What’s the rationale for that?

I don’t accept the minister’s reasoning there. I suppose the explanation stands on its own, and people can judge it. If the capital is paid back and this continues, then what’s the rationale for making the investment allowance only 75 percent of the capital? Is that a recognition that this is pretty sweet deal? Therefore, shouldn’t it be 100 percent?

Hon. M. de Jong: I think how would I respond is to say that it is designed to acknowledge the fact that businesses rarely finance 100 percent of their capital costs. I’m not sure there’s a magic figure. We have opted for the 75 percent amount.

I would say this also, drawing from our earlier conversations. In assessing this and settling upon its inclusion in the act, we see value from the point of view of the Crown as it relates to preserving the revenue stream that might otherwise be diminished in circumstances where corporations are, as it were, incented to structure their financing in a certain way.

I heard the member refer to the sweetheart deal. Candidly, we don’t view it that way. In fact, much of the motivation was to preserve, to the greatest extent possible, the revenue stream, via the tax, to the Crown.

B. Ralston: Forgive me if I am not following the minister accurately. The capital investment account is paid off, and it’s paid off by the return of revenue. That’s taxed at the lower rate until the capital investment account is paid off. The higher rate doesn’t kick in, as I understand it. Yet this rate continues. This exemption from taxation continues even though the full cost of capital of the plant has been paid off. Presumably, if the cost is paid off, there is no continuing interest deduction.

One is imputing, I suppose, to them a motive to create or plan their financial affairs in a way that would take deductions and reduce income even further. But if it’s not deductible, then that sort of ends that.

[1745]

I’m just wondering what the rationale is for giving this, basically, statutory return on capital after the return of capital has already been given a very preferential rate.

Hon. M. de Jong: I think perhaps…. I won’t be presumptuous on the hon. member’s behalf. But where the disconnect may be is where the member, I think, draws an ironclad linkage between the deduction of capital costs to the extent that where that has been completed and a company, a taxpayer has deducted and enjoyed the benefits of deducting the sum total of their capital costs that automatically, therefore, there is no debt, and automatically, therefore, in a conventional structure there is no ability to deduct financing charges.

My response is that that is not automatically so. We have, in a similar way, tried to recognize that fact in the formula, methodology and approach taken here. My sense is that I’m not going to convince the hon. member of the wisdom of that approach, but I hope I have done a better job conveying the rationale.

A. Weaver: I’m trying to understand this formula here. Perhaps it was alluded to by the previous member, but why 75 percent? Where did that number come from in the formula, and why isn’t that just embedded in the rate? Why do you need to have 75 percent of the rate times the current balance and previous balance? Why not just a rate?

Hon. M. de Jong: I think the best answer I can offer the hon. member is to simply point out that in developing the formula and the multiplier, some thought was given to what a plausible debt-to-equity ratio might be, which isn’t to say that’s what’s going to exist on all projects or even any project. But analysts and officials deemed that and advised that that was a plausible debt-to-equity scenario for projects of this sort.

Section 46 approved on division.

On section 47.

B. Ralston: This, again, is a significant series of sections. This division is the method in which the cost of natural gas is calculated. I’m wondering if the minister could explain the basic principles by which that takes place.

[1750]

I note that there are some challenges to deciding that, given that there will be a wide…. If final investment decisions go ahead and the plants are built, there could well be a range of costs, whether they’re the costs of gas in a long-term contract, which might be higher than, say, a fluctuating price such as the Henry Hub price, which would be a market price that would vary weekly, if not daily.

Can the minister explain the mechanism by which the cost will be calculated for the purposes of taxation?
[ Page 5624 ]

Hon. M. de Jong: Hopefully, I’ll start this conversation off in a way that is helpful by saying that in an arm’s-length transaction the valuation process would focus on the actual cost of the gas at the inlet to the facility — so fairly straightforward in circumstances where there is an arm’s-length transaction.

B. Ralston: In the Ministry of Finance valuation document they talk about a price upstream at Spectra 2 as a market price. Then they speak of a transportation cost, and I think those two are added together to get the price at the inlet. Is that a fair statement?

Hon. M. de Jong: I began by referring to what, in effect, the sections don’t deal with. We’re dealing with circumstances where there’s an integrated operation and the gas arriving at the facility, or non-arm’s-length transactions involving the gas at the facility — two issues. I think the member knows this. We talked about it yesterday in the definitional sections.

By regulation we will identify a reference point for the facility, and in broader terms, we will identify a reference price by regulation. The member has identified one of the options that is available to us with respect to a reference price that we are giving serious consideration to. We haven’t finalized that decision just yet, however.

B. Ralston: Can the minister, then, explain how that will work in the case of a non-arm’s-length transaction? That’s the case of…. I understand the act to say there’s a deemed disposition of the gas at the inlet, and then a price is attributed at the outlet when it becomes LNG and is shipped off. There’s a mechanism for calculating that.

[1755]

If I’ve described that accurately, how will that take place?

Hon. M. de Jong: Gas enters at the facility inlet. It is deemed a purchase at that point, a deemed purchase that draws on the reference point and the reference price as applied to the reference point and adds in transportation costs from the reference point to the inlet. That, very roughly speaking, is how in an non-arm’s-length situation that would work.

B. Ralston: Is there a separate purchase or sale deemed when the LNG leaves the plant at the outlet to be shipped abroad?

Hon. M. de Jong: Just to clarify and respond to the member’s specific question. Yes, liquefaction takes place on the way out. It’s deemed a sale if there is not an actual sale. If there’s an actual sale, there is data to rely upon. If there’s no actual sale, then it’s a deemed sale at that point.

B. Ralston: In this series of sections, there’s the notion of the cost of gas “notionally acquired” each month, and that’s repeated. Is that a reference to the mechanism of the deemed purchase at the inlet, or is there some other nuance that’s designated by that term?

Hon. M. de Jong: It refers to the deemed purchase in a non-arm’s-length transaction.

Sections 47 to 53 inclusive approved.

On section 54.

B. Ralston: This section initiates a new part, which is the computation of net income. I believe the member for Oak Bay–Gordon Head has indicated he wants to ask a question on section 57.

For the purposes of this section, can the minister describe how net income is to be calculated under these provisions, section 54 in particular?

[1800]

Hon. M. de Jong: I’m going to try and respond to the member’s question, and I hope he’ll appreciate that I’m going to try to summarize what is in the sections. This is not meant to be the definitive interpretation of the sections but for the purposes of the discussion. I think that’s, in fairness, what the member was conceptually asking for, as opposed to a three-hour dissertation on how all these calculations work.

Net income is a calculation that draws on net operating income, which is revenue minus expenses less the investment allowance, and then adds a taxpayer’s negative capital investment account balance, and then deducts from that the net operating loss account and, if there’s still net income, the balance in the capital investment account. Other details around that, but that, roughly speaking, represents the calculation of net income.

B. Ralston: The note I have says that net income cannot be negative under this calculation. Is that correct?

Hon. M. de Jong: That is correct.

B. Ralston: Net income is the amount on which the 3.5 percent tax is applied. Is that correct?

Hon. M. de Jong: That is correct as well.

Sections 54 to 56 inclusive approved.

On section 57.

A. Weaver: This is another one of these potential loopholes I was hoping to explore a little bit with a question, through an example. Let’s suppose, hypothetically here, that there are two LNG taxpayers who each own an LNG
[ Page 5625 ]
plant. We’ll call the first one John’s Big LNG Plant, and the second one is Jane’s Really Big LNG Plant. So we’ve got these two plants. Now, they’re paying down their capital accounts over time and paying the tax at the 1.5 percent rate.

Then John’s Big LNG Plant approaches Jane’s Really Big LNG Plant and says: “Jane, do you want to buy me out?” So Jane’s Really Big LNG Plant then purchases out, makes a capital investment and buys John’s Big LNG Plant and becomes Jane and John’s Really Really Big LNG Plant.

My question is: at that point are they, then, again able to apply this new capital cost to defer paying any increased tax until this new capital purchase cost has actually been paid down, so that Jane and John’s Really Really Big LNG Plant actually, in perpetuity then, until such time as this account is paid down, will pay 1½ percent?

[1805]

Hon. M. de Jong: Well, thanks to the member for the example. It’s generally easier to deal with this in terms of, as opposed to in the abstract, a real-life example.

The first thing that I’d want to point out is that notwithstanding the transaction, as described by the member, both facilities are still filing returns. They don’t get to consolidate. Whether you own one facility or ten, you’re filing a separate return for each facility.

Secondly, in the scenario that the member has described and assuming it is an arm’s-length transaction, the owner of the first facility that has been purchased out, has been bought, is going to have tax consequences and tax obligations, including LNG income tax, because the income that they’ve received falls squarely within the ambit of the act — presumably, in the example given, including obligations at the higher rate.

The member’s second part of the question, though, I think is: does the purchaser in that scenario, as it relates to the purchase of the facility, then have a capital investment account that they can begin to draw down? I’m advised that the answer to that is yes. Again, assuming it’s an arm’s-length transaction, you capture tax on the income derived from the seller, but the purchaser develops a capital account in those circumstances as well.

A. Weaver: Thank you for that clarification.

First off, I should point out that the member for Peace River South suggested that I use Mike and Andrew’s Big LNG Facility, so I do that for his benefit.

My concern here is that this really is then a means and way of essentially deferring paying the high rate of tax by a company. Let’s suppose a company — this is now Mike’s Big LNG Facility — is bought up by Andrew’s Really Big LNG Facility. The creation of this new firm…. Andrew buys it out for exactly the price that Mike essentially put in on it. Now Andrew’s going to essentially get that amount of capital cost in his account double, because Mike’s already been claiming it, then Mike’s drawing it down. He’s approaching that critical threshold where he’s going to have to pay the higher tax.

Andrew comes along and says: “I’m going to buy your LNG facility, Mike, and call it a big one.” Now I get to go and give Mike the money. Mike’s not making a lot of money, because Mike’s just paying for the capital value. So he’s not making a lot that you’re going to tax for, from a capital sale. But Andrew now gets to defer paying tax, again, for however many years.

This seems like a really gaping loophole. Is it not? Is the minister not concerned that this is a loophole that will cause companies to essentially pay 1.5 percent forever, because they’re also looking for that Mike’s or Andrew’s LNG facility to purchase?

[1810]

Hon. M. de Jong: First of all, I think it’s appropriate for the member to poke and prod and try to ascertain where there may be loopholes or unintended consequences. We don’t think, in the scenario that the member has described, this qualifies in that regard. It may have as much to do with the practicality of the situation as it does with the manner in which the calculations occur.

In the scenario that the member has described where…. Let’s presume the purchase takes place the day a plant becomes operational. There is a capital investment account, and in the member’s scenario, the sale is for precisely the amount that the vendor invested in the construction of the facility. Unlikely, but for the sake of this conversation, let us say it is so. In that scenario, nothing has been gained and nothing has been lost. The capital investment account remains in the amount that existed when that plant was completed.

If the sale occurs one year, two years or three years after the operation of the facility, the taxpayer will have drawn down on that capital investment account and, in the example that the member has given, if the purchase price is for what the cost of the facility was in the first instance, then that difference will attract the full rate. It will be the remainder that continues. It will attract the full rate in the hands of the vendor as opposed to in the hands of the purchaser.

From that perspective it’s difficult to see where the “loophole” exists. The payer may be different, but the result is the same from the Crown’s point of view.

Sections 57 to 59 inclusive approved.

On section 60.

B. Ralston: I believe the member for Oak Bay–Gordon Head had a question, he told me, on section 60. I’ll defer to him.

A. Weaver: I’m just wondering if, under section (1)(c), the minister might be able to let me know what is meant
[ Page 5626 ]
by the term “financial incentive” and perhaps offer an example or two.

Hon. M. de Jong: We had a little bit of a conversation about this in the definition section. The kind of thing that is contemplated here and where this term exists elsewhere is a governmental grant or a refundable tax credit. That is what is contemplated in the language. I should say, when I say that, I haven’t got something hidden in my back pocket that I’m not telling the member about. The language is common to the federal Income Tax Act as well, and it was thought prudent to include a reference to it here.

Sections 60 to 62 inclusive approved.

On section 63.

The Chair: Shall section 63 pass?

B. Ralston: I’m content, subject to what other members may have to say, if we move to section 77, which initiates the division on transfer price.

[1815]

Sections 64 to 76 inclusive approved.

On section 77.

B. Ralston: The minister spoke earlier about transfer pricing rules. There is an interpretation in the bulletin that was provided. Can the minister explain in what circumstances these definitions will be applied? There are a number of definitions in this section, beginning in section 77.

Before examining several of them, can the minister simply explain the legislative intent in these sections and in what circumstances they will be applied? I think people have, perhaps, a notional idea of where they will apply in non-arm’s-length transactions where the operator is an integrated operator and controls the entire supply chain. Perhaps he can clarify.

Hon. M. de Jong: The member is correct. These are important provisions. I hope this isn’t oversimplifying it for anyone concerned if I were to say these sections in this part of the bill apply when, for lack of a better word, a taxpayer is dealing with itself and if that dealing would have been subject to the transfer pricing rules had it been between the taxpayer and a non-arm’s-length party.

One will see reference to partnerships and looking through the tiers of partnerships. The definitions contained in this section are those definitions required to interpret the transfer pricing rules in the division and, as I said earlier, provide a look-through rule for tiered partnerships, as another example of where a taxpayer is “dealing with itself.”

B. Ralston: I understand the effort in the drafting was to mirror the federal act, but there are some differences between the LNG act and the federal act when it comes to defining the transfer pricing rules. Can the minister explain the key differences between the two?

[1820]

Hon. M. de Jong: The two biggest differences that are probably worth noting here are that these provisions, drawing as they do on the federal model, also apply to self-dealings, and I’m advised that the federal act does not. Secondly, I’m reminded that the federal rules regarding transfer pricing apply exclusively internationally, and in our case, these rules apply not just internationally but for appropriate transactions and situations that occur domestically and within British Columbia.

I guess the third thing that is worth pointing out is that because of some of the unique terminology that is part and parcel of this legislation, some of the drafting, by necessity, in drawing the federal rules, has been altered to ensure that we are including the relevant terminology that is part of this statute.

B. Ralston: I understand that in the definition of “transfer price,” this is the price actually paid between non-arm’s-length entities and may be subject to an adjustment. So there is the power within these provisions to adjust, I suppose, the nominal price or the stated price to what is considered to be an arm’s-length price?

Hon. M. de Jong: I’m advised that’s correct, following an audit.

B. Ralston: In dealing with the issue of enforcement, I think transfer pricing is a notoriously difficult concept to monitor, police, administer globally, and there are indeed OECD conferences and publications on dealing with transfer pricing.

What would be the mechanisms of enforcement here? I know there’s a penalty section. But prior to getting to the point of assessing a penalty, what would be the mechanisms for making those inquiries and being able to actually enforce these rules? The minister had mentioned earlier that there will be a separate statute in the spring that may deal with this. Or are they contained in here in an effective way?

[1825]

Hon. M. de Jong: The member is correct. First of all, the member is correct about the importance of having proper monitoring and enforcement powers. I can advise the member and the committee again that the…. Most of those enforcement tools and mechanisms will be included in the spring legislative offering — the power to audit and enforce and administer penalties.

Having just said that, however, I can also point to section 80 in the bill before us, where the member will see the
[ Page 5627 ]
ability to levy what I would deem significant penalties. But I would not want to leave the impression that this represents the sum total of the enforcement instruments or tools that will be available. We will have a chance to explore the sufficiency of those tools in their totality next spring.

B. Ralston: In the definitions section here, in section 77, there’s reference to a “transfer pricing adjustment” and a “transfer pricing capital adjustment.” Given those powers, if they were used, would it follow automatically that there would be penalties assessed if there was a need to resort to a transfer pricing adjustment, or is that an independent consideration as to whether penalties would be assessed in some cases and not in others?

Hon. M. de Jong: I’ll deal specifically with section 80, where the member will see that there is a discretionary authority to impose the penalty in the circumstances where, for example, the taxpayer has not facilitated through the providing of material that would allow for an assessment or has otherwise run afoul of the transfer pricing rules.

I’m hesitant to speculate about the remaining enforcement provisions in the absence of allowing the member to see them. That work is ongoing right now. In the one instance that we have statutorily drafted, I can point to the discretionary authority to administer the penalty. The work around other enforcement mechanisms is underway, and we’ll assess the mandatory or discretionary nature of those penalties when we have that product.

B. Ralston: Typically, it’s my understanding, in the case of the transfer pricing and any investigations that would take place, they would be taking place under the authority of Revenue Canada in assessing the income tax filings of individual companies. So this would appear to create the necessity to create a separate enforcement arm to look at compliance with these sections.

Again, as the minister probably knows, transfer pricing is a notoriously difficult concept to apply, to detect, to administer, to enforce. Given that you’re dealing with some of the biggest companies in the world, generally they have pretty able people who can justify and advise them in a way that they would presumably say complies with the law.

Is it realistic to think that the future enforcement capacity of the ministry is such that it could deal with these kinds of challenges that may be posed?

[1830]

Hon. M. de Jong: The subject is important enough to warrant the question. Obviously, it plays an important part in the material before us.

A couple of things. One of the options that we are exploring — and the member has correctly identified the expertise that would exist federally as it relates to issues around transfer pricing — is the notion of joint audits and perhaps tapping into some of that expertise in avoiding unnecessary duplication of effort, because the same concepts are relevant for the purposes of assessing corporate income tax obligations.

That’s one option that we are exploring — admittedly, early days — and beyond that we would want to offer assurance to the member and the committee that we attach sufficient importance to this area to want to ensure that we have a combination of suitable arrangements in place, with federal partners and sufficient in-house expertise, to fulfil the role that we would have as the administrators of this taxation legislation.

B. Ralston: I’m aware that frequently provincial governments contract with the federal government, Revenue Canada, to administer certain programs for them. Is that what the minister is alluding to, that there may well be an agreement with Revenue Canada? I mean, this may be a bit anticipatory of the legislation in the spring, but is that what’s being contemplated?

Hon. M. de Jong: Probably a bit premature for me to leave that impression with the member or the committee. Some initial conversations have taken place around this notion of joint audit efforts. I wouldn’t want at this stage to suggest to the member that we are on the cusp of some formal arrangement with the federal government. We’re not at that stage.

As I say, to the extent that there have been conversations, it has been around a joint audit effort on this particular aspect of the legislation.

B. Ralston: One of the definitions — I don’t think it’s in this section, but in this part — refers to “Contemporaneous documentation supporting reasonable efforts.” Can the minister explain what requirement that would be and how it would be different from the ordinary conduct of business, where one is obliged to keep certain records for the purposes of audit by Revenue Canada or provincial sales tax or something like that?

It’s after the Penalty section. It talks about contemporaneous documentation supporting reasonable efforts. There’s quite a long definition of what’s required.

Can the minister just…? What I’m interested in is: how, if at all, is this different from the ongoing obligation of a business to keep records to justify its deductions, or provincial sales tax, where you may be subject to audit? I wonder if there’s anything more in this.

[1835]

Hon. M. de Jong: I’ve received, I think, relevant advice on the matter that the member has raised. I’m looking at section 81, which is, I think, the section that the member was referring to, which does set out the requirements for documentation to support the taxpayers’ determination of transfer prices. Of course, the test here, the measure, is whether or not the taxpayers have made a reasonable
[ Page 5628 ]
effort to reach an arm’s-length transfer price.

The significance of the requirement for an adequacy of contemporaneous documentation, I am reminded, is that unlike other circumstances where one is obliged, or taxpayers are obliged, to present documentation in support of their returns and their filings, the documentation and the methodology relating to the determination of transfer price must exist at that time.

The taxpayer must be in a position to demonstrate that this is the material that we relied upon at the time we made this determination. They can’t paper the decision after the fact, which is, I think, the relevance of the reference to contemporaneous documentation, which, I believe, is a term utilized in federal legislation as well. So it is not a unique term to our provincial statute, but it is a concept known to the federal statute as well.

B. Ralston: In addition to creating the records contemporaneously, will there be an obligation — I’m not able to see it here; it’s a fairly detailed section — to provide those to the taxing authority simultaneously as well? In other words, will there be an ongoing stream of data into an account that would be available? It would seem one way of guaranteeing that the data was indeed generated contemporaneously. Or is that an issue for enforcement down the road?

Hon. M. de Jong: I’m advised that under the provisions, it does not automatically follow that the taxpayer is obliged to provide the contemporaneous documentation relating to the transfer pricing decisions they make. However, the authority exists within the provisions we’re dealing with to obligate or require them to provide that material at the time they make the decisions if, in the view of the administering authority, that is deemed necessary or appropriate.

B. Ralston: I’m looking under the definition of contemporaneous documentation. There’s a reference in subsection (a)(vi): “the assumptions, strategies and policies, if any, that influenced the determination of the transfer prices or the allocations of profits or losses or contributions to costs in respect of the transaction.” That would seem to be a fairly detailed requirement. In discussions with proponents, are they aware of these provisions? I doubt they’re enthusiastically embracing them, but are they aware of them?

[1840]

Sections 77 to 80 inclusive approved.

On section 81.

Hon. M. de Jong: In short, the answer is yes. That is because, particularly for the major proponents — and the member has mentioned a few during the course of the debate — there is a familiarity with the federal rules and the federal methodology. To the extent that this represents in large measure an adaptation or adoption of those provisions, this will not appear mysterious to those proponents.

Sections 81 and 82 approved.

On section 83.

B. Ralston: This division refers to computations for the first taxation year. This would appear to be the directions on how to set up the various accounts. Can the minister explain what is the direction to the taxpayer here in these sections in terms of computations for the first taxation year?

Hon. M. de Jong: In general terms, the section we’re dealing with now, 83, is attempting to define those types of expenditures that can be included in determining the net operating loss account and the capital investment account in the first taxation year. It’s intended to provide guidance on that point and in the calculation of those accounts in the first taxation year.

B. Ralston: When the legislation was initiated and the minister held a press conference, he did say that some costs that were previously not going to be eligible, such as construction costs and a fairly expanded view of construction, were now considered to be qualifying expenditures, I suppose.

Is there a list, or is the minister able to give a general recitation here of those broad areas which are eligible to be included in the capital investment account that in the original proposal in the spring were not?

Hon. M. de Jong: In answering the member’s question, I’m going to ask that he accept that I’m restricting this description to a circumstance in which a new LNG facility is being constructed. There is, as he notes, a case of an existing LNG facility. To avoid overly complicating this matter, I’m going to set that aside for the moment.

[1845]

The definitions that relate to an LNG facility and the definition of a capital cost relating to an LNG facility are all instructive in determining what represents allowable costs. The fact that those costs are incurred prior to the first taxation year does not disqualify them from being included. But as I’m reminded, they must relate to the facility, and they must relate to the income that is being ultimately generated at that facility. The fact that they occur prior to the first taxation year does not disqualify them as long as they qualify under the relevant definitions that we have considered elsewhere in the act.

B. Ralston: For the first taxation year, would that include construction costs, costs of acquisition of land, legal costs, engineering costs, public consultation costs and travel costs of executives to and from the jurisdiction? I had under-
[ Page 5629 ]
stood that given the dollar amounts that were, certainly, in some of the sites, invested in construction, this could substantially delay, if that’s deductible, moving to tier 2 and the tax for some of these projects for a number of years.

Hon. M. de Jong: I think I can be, hopefully, fairly clear about this. The member has mentioned some of the site preparation work that is taking place. Insofar as that site preparation work relates to sites where an LNG facility is ultimately constructed, then those costs would qualify and would factor into the calculation of the capital expense cost.

The member has mentioned some other related costs — facility design costs, travel costs relating to early work. In general, we should think in terms of those being includable. What would not, I can say, though, be included is work or expenses related to upstream developments, exploratory and drilling activity. That would be excluded from the calculation of capital expenses relating to the LNG facility. That’s not definitive, but I hope that’s helpful to the member.

B. Ralston: It’s not simply acquisition of land and construction. It would also include costs of services such as engineering costs, legal costs, regulatory applications — making applications through various regulators that would be required. It’s a fairly expansive definition of eligible expenses, is what I’m detecting.

Can the minister say whether, in the modelling that was done, there’s some rough estimate of…? For some of these big projects, one does hear numbers of $700 million or $800 million. I have no private knowledge of the accuracy of those figures, but certainly large expenses. So in the modelling, can the minister explain how long it would take, if those expenses are part of the capital investment account, to get to tier 2 in some of these projects? And by “how long,” I mean how long in years.

[1850]

Hon. M. de Jong: In the material that I’m happy to provide to the member — and he may already have it — he’ll see that the modelling suggests…. This is where the viability and attractiveness of this industry remains. The suggestion is that inside of three, four years, the graduation to the higher tax would occur.

B. Ralston: I do remember the graphs that were released. I’m just wondering whether those were based on modelling or, simply, rough estimates. I’m assuming a level of precision that’s greater than rough estimates, certainly, for the purpose of predicting future revenue, realizing that that’s required for the long-term budgetary process. What degree of detail and hard costs were put together to make that kind of a calculation of three to four years?

Hon. M. de Jong: I appreciate the member’s interest and, maybe, a little bit of frustration about the potential accuracy of some of these large numbers. I’m just conferring with one of our senior officials who confirms for me that with respect to assessing the cost and the cost structure at this stage, candidly, we derive that information, as the member would expect, from the proponents themselves. They are the best source we have at this stage of the game about the likely cost structure.

What we are able to do more independently, on the basis of independently available information, is model the revenue stream going forward — not an exact science, to be sure, but there is independent information available, and forecasting information from a variety of sources, that we can use. Put the two together, and it allows us to make some assumptions about the time it would take for a certain-sized operation to graduate from a tier 1 to a tier 2 tax amount. That’s what I can offer to the member at this point.

B. Ralston: Perhaps just to recapitulate on that point, then. The minister is confident in his projection of three to four years? There would be, assuming a final investment decision — I think what was supposed in the material was 2015 — three to four years for a shift from tier 1 to tier 2. Is that what the minister is saying, then?

Hon. M. de Jong: I’m reminded again by the officials that in the example I have given, and I think offered to the member earlier, we were there speaking about an integrated facility.

In referring to the dates — and I was distracted for just a moment — I don’t think the member meant to exclude the construction period. There is that, and then the three- or four-year period of operation that we believe is still realistic to see graduation to the second tier of the tax.

B. Ralston: I move that the committee rise, report progress and ask leave to sit again.

Motion approved.

The committee rose at 6:54 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: May I take this opportunity to invite you all to the Christmas Lights Across Canada on the front steps of the Legislature in seven minutes.

This House, at its rising, stands adjourned until 10 a.m. tomorrow morning.

The House adjourned at 6:55 p.m.

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