Regulations Amending the Income Tax Regulations (Federal Crown Corporations): SOR/2018-160

Canada Gazette, Part II, Volume 152, Number 15

Registration

July 16, 2018

INCOME TAX ACT

P.C. 2018-989 July 16, 2018

Her Excellency the Governor General in Council, on the recommendation of the Minister of Finance, pursuant to section 221 footnote a of the Income Tax Act footnote b, makes the annexed Regulations Amending the Income Tax Regulations (Federal Crown Corporations).

Regulations Amending the Income Tax Regulations (Federal Crown Corporations)

1 Section 7100 of the Income Tax Regulations footnote 1 is amended by striking out “and” at the end of paragraph (i), by adding “and” at the end of paragraph (j) and by adding the following after paragraph (j):

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Issues

On May 29, 2018, the Government of Canada announced that it entered into a Purchase and Sale Agreement (the Agreement) with Kinder Morgan Cochin ULC (Kinder Morgan) for the purchase of the Trans Mountain Pipeline (the Pipeline), related assets and the Trans Mountain Expansion Project (the Project). The Agreement requires that the purchasing corporation be taxable. An amendment to the Income Tax Regulations (the Regulations) is required to provide for the taxability of the federal Crown corporation that will acquire and hold the Government of Canada’s interest in the Pipeline and the Project, and their related assets.

Background

Project Deliver II Ltd. is a Crown corporation and a wholly owned subsidiary of the Canada Development Investment Corporation (CDEV). Project Deliver II Ltd. has been set up as an operating company, which would be responsible for acquiring and holding the Government of Canada’s interest in the Pipeline and the Project, and their related assets.

Paragraph 149(1)(d) of the Income Tax Act (the Act) exempts federal Crown corporations from tax under Part I of the Act. The long-standing federal policy has been that federal Crown corporations that are engaged in commercial activities and viewed as being in competition with private sector firms should be subject to tax under Part I of the Act. Subsection 27(2) of the Act provides an exception to the exemption in respect of these corporations, which are prescribed by section 7100 of the Regulations.

Amending section 7100 of the Regulations by adding Project Deliver II Ltd. ensures that it is a taxable Crown corporation. Since the tax consequences of a transaction of this nature can differ depending on whether the purchaser corporation is exempt or taxable, the agreement with Kinder Morgan included a requirement that the purchaser corporation would not be exempt from income tax.

Objectives

The objective of amending section 7100 of the Regulations is to ensure that Project Deliver II Ltd. is a taxable Crown corporation.

Description

This amendment lists Project Deliver II Ltd. as a prescribed Crown corporation under section 7100 of the Regulations. As a result, Project Deliver II Ltd. will be subject to federal income tax under the Act.

“One-for-One” Rule

Section 7100 is an existing provision of the Regulations and prescribing Project Deliver II Ltd. for the purposes of this provision does not impose an additional regulatory burden on taxpayers. Making Project Deliver II Ltd. taxable only affects the administrative and tax obligations of the Crown corporation and does not apply an additional administrative burden on any other businesses. Therefore, the “One-for-One” Rule does not apply.

Small business lens

The small business lens does not apply, as this amendment is not expected to impose new administrative or compliance costs on businesses.

Consultation

Given that this amendment only impacts CDEV, of which Project Deliver II Ltd. is an affiliate, and Kinder Morgan, no external consultations were undertaken.

Rationale

Prescribing Project Deliver II Ltd. as a taxable corporation is necessary to meet the conditions of the Agreement between the Government of Canada and Kinder Morgan. Given the nature of Project Deliver II Ltd. activities, it is also appropriate that it be prescribed as a taxable corporation.

Contact

Trevor McGowan
Director General
Tax Legislation Division
Tax Policy Branch
Department of Finance Canada
Telephone: 613-369-3677