O. Reg. 141/09: PAYMENTS IN LIEU OF CORPORATE TAXES - MUNICIPAL ELECTRICITY UTILITIES

 

ontario regulation 141/09

made under the

Electricity Act, 1998

Made: February 10, 2009
Filed: April 6, 2009
Published on e-Laws: April 7, 2009
Printed in The Ontario Gazette: April 25, 2009

Amending O. Reg. 162/01

(Payments in Lieu of Corporate Taxes — Municipal Electricity Utilities)

1. Ontario Regulation 162/01 is amended by adding the following section:

Interpretation, ss. 8.2 and 11.1

1.1 (1) A corporation is an eligible corporation at a particular time in a taxation year for the purposes of subsection (2) and sections 8.2 and 11.1 if the corporation is liable to make a payment under section 89, 90 or 93 of the Act for the taxation year.

(2) A partnership is an eligible partnership at a particular time for the purposes of sections 8.2 and 11.1 if each member of the partnership is, at that time,

(a) an eligible corporation; or

(b) a partnership in which all of the partnership interests are held directly or indirectly by corporations that are eligible corporations.

2. Section 2 of the Regulation is amended by adding the following definition:

“collection agreement” has the meaning assigned by subsection 1 (1) of the Taxation Act, 2007;

3. Section 3 of the Regulation is revoked and the following substituted:

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 3.1, 4 and 5 to 12 of this Regulation.

(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 3.1 and 5 to 12 of this Regulation.

(3) The method of calculating the amount of a payment required by subsection 93 (2.1) of the Act is modified by the rules set out in sections 3.1 and 4.1 to 12 of this Regulation.

Tax exempt status

3.1 The following rules apply to a municipal electricity utility for each taxation year ending after December 31, 2008:

1. The Federal Act, the Corporations Tax Act and the Taxation Act, 2007 apply to the utility for the year as if the corporation were not exempt from tax under any of those statutes throughout the taxation year and throughout each previous taxation year for which payments were required under section 93 of the Act.

2. Except for the purpose of applying subsection 149 (10) of the Federal Act, the utility is considered to be exempt from tax under each of those statutes listed in paragraph 1 throughout each taxation year for which a payment is not required under section 93 of the Act.

4. The Regulation is amended by adding the following section:

Application of the Taxation Act, 2007

4.1 The following rules apply to a municipal electricity utility for the purposes of determining the amount of a payment under subsection 93 (2.1) of the Act for a taxation year ending after December 31, 2008:

1. The Taxation Act, 2007 applies,

i. as if a collection agreement were not in effect, and

ii. as if each adjustment required to be made under or because of any of sections 5 to 12 of this Regulation were, to the extent applicable, made for the purposes of the Federal Act.

2. The amounts determined under the Federal Act or the Corporations Tax Act for the purposes of subdivision d of Division B of Part III of the Taxation Act, 2007 are deemed to be those amounts as determined for the purposes of subsection 93 (1) or (2) of the Act, as the case may be.

3. The rules in paragraphs 2 and 3 of section 4 apply in so far as the Federal Act and the Federal Regulations are relevant for the purposes of the Taxation Act, 2007.

4. Despite any other provision of this Regulation, the utility’s taxable income for the taxation year for the purposes of section 93 of the Act is equal to its taxable income for the year under the Federal Act, except to the extent that there is a difference in the amounts resulting from the application of section 110 of the Taxation Act, 2007.

5. The Regulation is amended by adding the following sections:

Rollovers

8.2 Section 85 and subsection 97 (2) of the Federal Act do not apply on a disposition of property unless,

(a) the transfer occurs in a taxation year of the transferor that ends after October 1, 2001; and

(b) the transferee is an eligible corporation or eligible partnership immediately before and immediately after the disposition.

Income, separate businesses

8.3 (1) In this section,

“core business property” means property that is or was used or held by a municipal electricity utility in carrying on a core electricity business;

“core electricity business” means a business in which the primary business activity is the generation, transmission, distribution or retailing of electricity or any combination of two or more of those activities;

“non-core business” means a business that is not a core electricity business;

“non-core property” means, in respect of a municipal electricity utility, property that was never used or held by the utility in carrying on a core electricity business;

“restricted allowable capital loss” means, in respect of a taxation year, an allowable capital loss or allowable business investment loss realized in the year on the disposition of a non-core property;

“restricted non-capital loss” means, in respect of a taxation year, a loss for that year from a non-core business;

“total restricted allowable capital loss” means, in respect of a municipal electricity utility for a taxation year,

(a) nil, if the year ends before January 1, 2008, or

(b) the sum of the utility’s restricted allowable capital losses for the year, if the year ends after December 31, 2007;

“total restricted non-capital loss” means, in respect of a municipal electricity utility for a taxation year,

(a) nil, if the year ends before January 1, 2008, or

(b) the sum of the utility’s restricted non-capital losses for the year, if the year ends after December 31, 2007.

(2) An expression used in this section that has a meaning assigned by the Federal Act, the Corporations Tax Act or the Taxation Act, 2007 has the same meaning for the purposes of this section.

(3) The following rules apply in determining a municipal electricity utility’s taxable income for a taxation year ending after December 31, 2007:

1. For the purposes of applying sections 3 and 111 of the Federal Act, each of its restricted non-capital losses and restricted allowable capital losses for the year is deemed to be nil.

2. Subject to paragraph 4, there may be added to the amount otherwise deducted in computing its taxable income for the year an amount not exceeding the lesser of “A” and “B” where,

“A” is the amount by which the sum of its total restricted non-capital losses for the year, for its last 20 taxation years ending before the year and for its first three taxation years ending after the year exceeds the portion of that sum that may reasonably be considered to have been added under this paragraph to the amount deducted in computing its taxable income for a previous taxation year, and

“B” is the amount, if any, by which “C” exceeds “D” where,

“C” is its total income for the year from property and non-core businesses, and

“D” is the amount, if any, by which its total losses for the year from its core electricity businesses exceeds its total income for the year from its core electricity businesses.

3. Subject to paragraph 4, there may be added to the amount otherwise deducted in computing its taxable income for the year an amount not exceeding the lesser of “E” and “F” where,

“E” is the amount by which the sum of its total restricted allowable capital losses for the year, for its taxation years preceding the year and for its first three taxation years ending after the year exceeds the portion of that sum that may reasonably be considered to have been added under this paragraph to the amount deducted in computing its taxable income for a previous taxation year, and

“F” is the amount, if any, by which “G” exceeds “H” where,

“G” is the sum of all amounts, each of which is a taxable capital gain of the utility for the year from the disposition of a non-core property, and

“H” is the amount, if any, by which the sum of all amounts each of which is its allowable capital loss or allowable business investment loss for the year from the disposition of a core business property exceeds the sum of all amounts each of which is its taxable capital gain for the year from the disposition of a core business property.

4. If control of the municipal electricity utility is acquired by a person or group of persons,

i. no portion of its total restricted allowable capital loss or total restricted non-capital loss for a taxation year ending before the acquisition of control may be included in an amount determined under paragraph 2 or 3 for a subsequent taxation year, and

ii. no portion of its total restricted allowable capital loss or total restricted non-capital loss for a taxation year ending after the acquisition of control may be included in an amount determined under paragraph 2 or 3 for a taxation year ending before the acquisition of control.

(4) For the purposes of applying Parts V and VI of the Corporations Tax Act, an amount that is deducted by reason of paragraph 2 or 3 of subsection (3) for a taxation year is treated in the same manner as if it were deducted under section 111 of the Federal Act or under that section as it applies for the purposes of the Corporations Tax Act or the Taxation Act, 2007, as the case may be.

6. Section 9 of the Regulation is amended by striking out “For the purposes of sections 39, 57.6 and 67 of the Corporations Tax Act” at the beginning and substituting “For the purposes of sections 39, 57.6 and 67 of the Corporations Tax Act and the definition of “Ontario allocation factor” in subsection 1 (1) of the Taxation Act, 2007”.

7. (1) Subparagraph 2 i of subsection 10 (1) of the Regulation is amended by striking out “for the purposes of section 4 of the Corporations Tax Act” at the end and substituting “for the purposes of the Taxation Act, 2007 or section 4 of the Corporations Tax Act, as the case may be”.

(2) Subsection 10 (2) of the Regulation is amended by striking out “income and taxable paid-up capital for the taxation year” in the portion before the formula and substituting “income for the taxation year and its taxable paid-up capital or taxable capital for the year”.

8. The Regulation is amended by adding the following section:

Disposition of partnership interest

11.1 (1) Subsection 100 (1) of the Federal Act does not apply for the purposes of determining the amount of a payment required by section 93 of the Act in respect of a disposition after December 31, 2007.

(2) Despite the application of paragraph 38 (a) of the Federal Act, as it applies for the purposes of determining the amount of a payment required by section 93 of the Act, a municipal electricity utility’s taxable capital gain for a taxation year from the disposition after December 31, 2007 of an interest in a partnership to any person or partnership that is not an eligible corporation or eligible partnership is deemed to be the sum of,

(a) one-half of the portion of the utility’s capital gain for the year from the disposition of the interest that may reasonably be regarded as attributable to increases in the value of any partnership property of the partnership, other than depreciable property, that is capital property; and

(b) the whole of the remaining portion of the capital gain.

9. Section 12 of the Regulation is revoked and the following substituted:

Change in tax status

12. (1) Subsection (2) applies to a municipal electricity utility if,

(a) the utility ceases at any time to be exempt under subsection 149 (1) of the Federal Act in circumstances in which a deemed disposition occurs under paragraph 149 (10) (b) of the Federal Act;

(b) the utility was exempt immediately before that time under subsection 57 (1) of the Corporations Tax Act or subsection 27 (2) of the Taxation Act, 2007; and

(c) the utility was not exempt at that time under subsection 57 (1) of the Corporations Tax Act or subsection 27 (2) of the Taxation Act, 2007.

(2) The following rules apply to a municipal electricity utility to which this section applies:

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

2. The taxation year of the utility is deemed to end immediately before the time that the corporation ceases to be exempt from the payment of tax under subsection 149 (1) of the Federal 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 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 subparagraph 5 ii 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 subparagraph 5 ii 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.

10. Subsection 13 (3) of the Regulation is revoked and the following substituted:

(3) If a municipal electricity utility is required to make a payment under subsection 93 (2.1) 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 111 of the Taxation Act, 2007 and such other information as the Minister of Finance may require for the purposes of determining the amount payable for the year.

(4) For the purposes of applying Parts V and VI of the Corporations Tax Act, a return under subsection (3) is deemed to be a return required by section 75 of the Corporations Tax Act.

(5) A municipal electricity utility that is required to deliver a return under subsection (1), (2) or (3) shall deliver the return not more than six months after the end of the taxation year to which the return relates.

11. This Regulation comes into force on the day it is filed.

Made by:

Dwight Douglas Duncan

Minister of Finance

Date made: February 10, 2009.