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Electricity Act, 1998
Loi de 1998 sur l’électricité

ONTARIO REGULATION 162/01

Amended to O. Reg. 172/02

payments in lieu of corporate taxes — municipal electricity utilitIES

Historical version for the period June 21, 2002 to December 28, 2005.

Disclaimer: This consolidation is not an official copy of the law because it is affected by one or more retroactive provisions which have not been incorporated into it. For information about the retroactive provisions, see O. Reg. 672/05, subsections 3 (2) and (3).

This Regulation is made in English only.

Application

1. This Regulation applies to every municipal electricity utility that is required to make a payment under section 93 of the Act.  O. Reg. 162/01, s. 1.

Definitions

2. In this Regulation,

“Federal Act” means the Income Tax Act (Canada);

“Federal Regulations” means the regulations made under the Federal Act;

“transfer by-law” and “transferor” have the meanings assigned by section 141 of the Act.  O. Reg. 162/01, s. 2.

Modifications to method of calculating amount of payment

3. (1) The method of calculating the amount of a payment required by subsection 93 (1) of the Act is modified by the rules set out in sections 4 to 12.  O. Reg. 162/01, s. 3 (1).

(2) The method of calculating the amount of a payment required by subsection 93 (2) of the Act is modified by the rules set out in sections 5 to 12.  O. Reg. 162/01, s. 3 (2).

Application of Federal Act and Federal Regulations

4. The following rules apply in the application of the Federal Act and the Federal Regulations in determining the amount of a payment required by subsection 93 (1) of the Act:

1. Sections 151 to 180 and 220 to 244 of the Federal Act do not apply.

2. References in the Federal Act and in the Federal Regulations to the “Minister of National Revenue” or to the “Minister” shall be read as references to the Minister of Finance.

3. If the Federal Act or the Federal Regulations require an election, designation or other document to be filed with the Minister of National Revenue, it must be filed instead with the Minister of Finance.  O. Reg. 162/01, s. 4.

Private corporation

5. A municipal electricity utility shall be deemed to be a private corporation.  O. Reg. 162/01, s. 5.

Taxation year

6. (1) The first taxation year of a municipal electricity utility ending after October 1, 2001 ends on the same day as the utility’s first fiscal period ending after October 1, 2001.  O. Reg. 162/01, s. 6 (1).

(2) The utility may change the day on which a subsequent taxation year ends only with the consent of the Minister of Finance.  O. Reg. 162/01, s. 6 (2).

Cost of transferred property

7. (1) The following property shall be deemed to be acquired by a municipal electricity utility on October 1, 2001 at a cost equal to the fair market value of the property on that date:

1. Property that is transferred to the utility under a transfer by-law.

2. Property that is acquired by the utility before October 1, 2001 but after any property is transferred to the utility under a transfer by-law.  O. Reg. 162/01, s. 7 (1).

(2) In determining the fair market value of property referred to in subsection (1), (4) or (6), a municipal electricity utility shall use a valuation method,

(a) that is generally accepted as a reasonable method for determining the fair market value of the particular type of property; and

(b) that is acceptable to the Minister of Finance.  O. Reg. 162/01, s. 7 (2); O. Reg. 172/02, s. 1 (1).

(3) If a transferor transfers property to a municipal electricity utility under a transfer by-law and if the utility describes the transferred property as falling within Class 24 or 27 of Schedule II to the Federal Regulations immediately before the transfer, the transferred property shall be deemed to be property in the same class after the transfer if the following conditions are satisfied:

1. The transferor acquired the property before 1999.

2. The Minister of Finance is satisfied that the primary use of the property by the utility is the prevention, reduction or elimination of pollution.  O. Reg. 162/01, s. 7 (3).

(4) Despite subsection (1), if all of the conditions set out in subsection (5) are satisfied, each property that is transferred under a transfer by-law to a municipal electricity utility from a person (as defined in subsection 85 (1) of the Act) shall be deemed,

(a) to have been acquired by the utility from the person at the time the person last acquired the property;

(b) to have been acquired by the utility at a cost equal to the fair market value of the property on October 1, 2001; and

(c) to have been acquired by the utility from a person with whom the utility was not dealing at arm’s length.  O. Reg. 172/02, s. 1 (2).

(5) The following are the conditions referred to in subsection (4):

1. The utility must elect to have subsection (4) apply with respect to all the property described in subsection (4).

2. The election must be made in the form approved by the Minister.

3. The election must be made in the return filed by the utility under section 13 for the taxation year, if any, commencing on October 1, 2001.

4. For the purpose of calculating the amount payable by the utility under section 93 of the Act for the taxation year, if any, commencing on October 1, 2001 and for each subsequent taxation year, the utility must apply subsection 1102 (14) of the Federal Regulations in respect of all the property described in subsection (4), unless the utility opts not to apply subsection 1102 (14) and the Minister is satisfied that the non-application of subsection 1102 (14) would not result in a decrease in the amount otherwise payable under section 93 of the Act.  O. Reg. 172/02, s. 1 (2).

(6) Despite subsection (1), if all of the conditions set out in subsection (7) are satisfied, each property that is transferred to a municipal electricity utility from a person (as defined in subsection 85 (1) of the Act) who, at the time of the transfer, is a municipal corporation formed as a result of a statutory municipal amalgamation of two or more predecessor municipal corporations shall be deemed,

(a) to have been acquired by the utility from the predecessor municipal corporation that owned the property immediately before the statutory municipal amalgamation;

(b) to have been acquired by the utility at the time that the predecessor municipal corporation last acquired the property before the statutory municipal amalgamation;

(c) to have been acquired by the utility at a cost equal to the fair market value of the property on October 1, 2001; and

(d) to have been acquired by the utility from a person with whom the utility was not dealing at arm’s length.  O. Reg. 172/02, s. 1 (2).

(7) The following are the conditions referred to in subsection (6):

1. The property must have been owned by one of the predecessor municipal corporations immediately before the statutory municipal amalgamation.

2. The utility must elect to have subsection (6) apply with respect to all the property described in subsection (6) and does not elect to have subsection (4) apply with respect to the property.

3. The election must be made in the form approved by the Minister.

4. The election must be made in the return filed by the utility under section 13 for the taxation year, if any, commencing on October 1, 2001.

5. For the purpose of calculating the amount payable by the utility under section 93 of the Act for the taxation year, if any, commencing on October 1, 2001 and for each subsequent taxation year, the utility must apply subsection 1102 (14) of the Federal Regulations in respect of all the property described in subsection (6), unless the utility opts not to apply subsection 1102 (14) and the Minister is satisfied that the non-application of subsection 1102 (14) would not result in a decrease in the amount otherwise payable under section 93 of the Act.  O. Reg. 172/02, s. 1 (2).

(8) In subsections (6) and (7),

“statutory municipal amalgamation” means, in relation to two or more municipal corporations, an amalgamation which is required by an Act or is otherwise required by law.  O. Reg. 172/02, s. 1 (2).

(9) An election referred to in subsection (5) or (7) is effective for the first taxation year of the utility, if any, commencing on October 1, 2001 and for all subsequent taxation years.  O. Reg. 172/02, s. 1 (2).

(10) A utility cannot revoke an election referred to in subsection (5) or (7) unless the utility has the consent of the Minister of Finance to do so.  O. Reg. 172/02, s. 1 (2).

Special rules

8. (1) The following rule applies in determining a municipal electricity utility’s income for its first taxation year ending after October 1, 2001:

1. The utility shall be deemed to have deducted under section 20 of the Federal Act an amount determined as if the utility,

i. had always been a corporation subject to tax under that Act, and

ii. had claimed or deducted in its prior taxation year the maximum amounts that it would have been entitled to claim and deduct under that section as a reserve for that prior taxation year.  O. Reg. 162/01, s. 8 (1); O. Reg. 172/02, s. 2.

(2) The following rules apply in determining a municipal electricity utility’s income, taxable income and amount payable under section 93 of the Act for a taxation year ending after October 1, 2001:

1. The utility is not entitled to deduct an amount in respect of any expense or loss incurred before October 1, 2001.

2. The amount of any deduction from the amount that would otherwise be payable under section 93 of the Act is determined as if the utility were a corporation incorporated on October 1, 2001.  O. Reg. 162/01, s. 8 (2).

(3) Subsections (1) and (2) do not apply to a municipal electricity utility that is subject to tax under the Federal Act or the Corporations Tax Act immediately before its first taxation year under section 93 of the Act ending after October 1, 2001.  O. Reg. 162/01, s. 8 (3).

No inter-provincial allocation

9. For the purposes of sections 39, 57.6 and 67 of the Corporations Tax Act, a municipal electricity utility that would otherwise have a permanent establishment in a jurisdiction other than Ontario shall be deemed not to have a permanent establishment in that jurisdiction if the utility is not subject to taxation under the laws of that jurisdiction on its income and on its capital.  O. Reg. 162/01, s. 9.

Income earned through other entities

10. (1) Subsection (2) applies to a municipal electricity utility for a taxation year if the following conditions are satisfied:

1. The utility owns at the end of the taxation year,

i. at least one share of a corporation that generates, transmits, distributes or retails electricity at any time in the utility’s taxation year,

ii. at least one share of a corporation that is related at the end of the utility’s taxation year to a corporation described in subparagraph i, or

iii. shares having a fair market value equal to at least 10 per cent of the fair market value of all issued and outstanding shares of a corporation that is not a corporation described in subparagraph i or ii.

2. The corporation meets all of the following conditions for its taxation year that ends during or on the same day as the utility’s taxation year:

i. The corporation is not subject to tax under the Federal Act by reason of subsection 149 (1) of that Act or is not subject to income tax under the laws of a jurisdiction in which the corporation would have a permanent establishment for the purposes of section 4 of the Corporations Tax Act.

ii. The corporation is not required to make a payment under section 89, 90 or 93 of the Act.  O. Reg. 162/01, s. 10 (1).

(2) For the purposes of determining the utility’s income and taxable paid-up capital for the taxation year, the corporation is treated as if it were a partnership in which the utility’s ownership interest in the partnership is equal to the fraction of the partnership’s income and capital calculated using the formula,

A/B

in which,

  “A” is the fair market value of the issued and outstanding shares of the corporation that are owned by the utility, determined as of the last day of the corporation’s taxation year ending in or on the same day as the utility’s taxation year, and

  “B” is the fair market value of all of the issued and outstanding shares of the corporation, determined as of that day.  O. Reg. 162/01, s. 10 (2).

Reduction on disposition of subsidiary

11. (1) This section applies if a municipal electricity utility disposes of shares of a subsidiary and, as a result of the disposition, subsection 149 (10) of the Federal Act applies to the subsidiary.  O. Reg. 162/01, s. 11 (1).

(2) The amount, if any, otherwise payable by the utility under section 93 of the Act as a consequence of the disposition of the shares is reduced by the amount, if any, payable by the subsidiary under that section, determined as if the subsidiary’s only income in the taxation year in which the disposition occurs is its income resulting from the deemed disposition of its assets under subsection 149 (10) of the Federal Act.  O. Reg. 162/01, s. 11 (2).

Change in tax status

12. The following rules apply if a municipal electricity utility ceases to be exempt under subsection 149 (1) of the Federal Act or under subsection 57 (1), section 57.11 or subsection 71 (1) of the Corporations Tax Act in circumstances in which a deemed disposition occurs under paragraph 149 (10) (b) of the Federal Act:

1. The utility shall be deemed to continue to be exempt until immediately after the deemed disposition.

2. The taxation year of the utility shall be deemed to end immediately before the time that the corporation ceases to be exempt from the payment of tax under the Federal Act and the Corporations Tax Act.

3. Subject to paragraphs 4 and 5, the utility shall pay the amount determined under section 93 of the Act calculated by reference to the deemed disposition under paragraph 149 (10) (b) of the Federal Act.

4. The utility is not required to pay an amount under paragraph 3 in respect of a deemed disposition of shares of a subsidiary corporation,

i. if the utility owns at least 90 per cent of the issued and outstanding shares of the subsidiary corporation, and

ii. if the subsidiary corporation is required to pay the amount determined under section 93 of the Act calculated by reference to the deemed disposition under paragraph 149 (10) (b) of the Federal Act.

5. The utility is not required to pay the amount described in paragraph 3 if both of the following conditions are satisfied:

i. The utility ceases to be exempt from the payment of tax under the Federal Act and the Corporations Tax Act as a result of a lawful distribution to the public of shares of the utility or a related corporation pursuant to a prospectus, registration statement or similar document filed with and, if required by law, accepted for filing by a public authority in Canada under the laws of Canada or of a province.  The distribution must be the first distribution to the public of shares of the utility or related corporation.

ii. With the consent of the Minister, the utility pays to the Financial Corporation an amount that, in the Minister’s opinion, reasonably approximates the additional amounts, if any, that would be payable by the utility under section 93 of the Act if the utility were required, but for this paragraph, to pay the amount described in paragraph 3.

6. An amount paid to the Financial Corporation under paragraph 3 cannot be varied on objection or appeal under the Corporations Tax Act.

7. The Minister is not permitted, on a reassessment, to vary an amount paid to the Financial Corporation under paragraph 3 unless, in the Minister’s opinion, the utility, a related corporation or a person acting on behalf of the utility or related corporation makes a misrepresentation to the Minister that is attributable to neglect, carelessness or wilful default or commits a fraud in giving information under the Act in respect of the determination of the amount paid to the Financial Corporation under that paragraph.  O. Reg. 162/01, s. 12; O. Reg. 123/02, s. 1.

Return

13. (1) If a municipal electricity utility is required to make a payment under subsection 93 (1) of the Act for a taxation year, it shall deliver to the Minister of Finance a return for the taxation year, in the form and containing the information required by section 150 of the Federal Act.  O. Reg. 162/01, s. 13 (1).

(2) If a municipal electricity utility is required to make a payment under subsection 93 (2) of the Act for a taxation year, it shall deliver to the Minister of Finance a return for the taxation year, in the form and containing the information required by section 75 of the Corporations Tax Act.  O. Reg. 162/01, s. 13 (2).

(3) A return required to be delivered under subsection (1) or (2) must be delivered within six months after the end of the taxation year to which the return relates.  O. Reg. 162/01, s. 13 (3).

Payments

14. (1) Section 78 of the Corporations Tax Act applies to municipal electricity utilities in respect of amounts payable under section 93 of the Act.  O. Reg. 162/01, s. 14 (1).

(2) Despite subsection (1), the following rules apply to amounts payable by a municipal electricity utility under section 93 of the Act for its taxation year, if any, that commences on October 1, 2001:

1. The first instalment for the taxation year is payable on or before October 31, 2001 and subsequent instalments for the year are payable on or before the end of each subsequent month in the taxation year.

2. The balance of the amount payable for the taxation year is payable on or before the end of the third month after the end of the taxation year.

3. Subclauses 78 (2) (a) (ii) and (iii), clause 78 (2) (b) and subsections 78 (3), (8), (9) and (10) of the Corporations Tax Act do not apply.

4. If the amount payable by the utility under section 93 of the Act for the taxation year is less than $2,000,

i. after the deduction of any credits to which the utility would be entitled if it were a corporation subject to tax under the Federal Act, and

ii. after the deduction of any credits and tax that would be deemed under Division E of Part II of the Corporations Tax Act to be paid by the utility if it were a corporation subject to tax under the Corporations Tax Act,

the utility is not required to pay monthly instalments on account of the amount payable under section 93 of the Act, and may pay the total amount on or before the end of the third month after the end of the taxation year.

5. Subsection 79 (1) of the Corporations Tax Act applies unless it is reasonable to believe from the amount of the instalments paid by the utility and the timing of the payments that the utility exercised due diligence in estimating the amount of its instalments.  O. Reg. 162/01, s. 14 (2); O. Reg. 172/02, s. 3 (1, 2).

(3) Despite subsection (1), subclause 78 (2) (a) (iii) and paragraph 2 of subsection 78 (4.2) of the Corporations Tax Act do not apply to a municipal electricity utility in respect of amounts payable under section 93 of the Act for the taxation year, if any, of the utility commencing immediately after the end of its taxation year that commenced on October 1, 2001.  O. Reg. 172/02, s. 3 (3).

(4) In applying section 78 of the Corporations Tax Act for a taxation year, clauses 78 (4.3) (a), (5) (b), (5.1) (b) and (6) (a) of that Act shall be read as if they included a reference to each credit that is an amount deemed under Division E of Part I of the Federal Act to have been paid on account of a corporation’s tax payable under the Federal Act for the taxation year.  O. Reg. 172/02, s. 3 (3).