Vol. 142, No. 26 — December 24, 2008

Registration

SOR/2008-318 December 12, 2008

FEDERAL-PROVINCIAL FISCAL ARRANGEMENTS ACT

Regulations Amending the Federal-Provincial Fiscal Arrangements Act and the Federal-Provincial Fiscal Arrangements Regulations, 2007

P.C. 2008-1925 December 12, 2008

(8) Paragraphs 7(1)(f) and (g) of the Regulations are replaced by the following:

(f) in the case of motive fuel taxes derived from the sale of gasoline referred to in paragraph (f) of that definition, taxes imposed by a province on final purchasers of gasoline used in an internal combustion engine, including aviation fuel, other than taxes or levies referred to in subparagraph (d)(iii) and taxes on the sale of liquefied petroleum gas;

(g) in the case of motive fuel taxes derived from the sale of diesel fuel referred to in paragraph (g) of that definition, taxes imposed by a province on final purchasers of diesel fuel used in an internal combustion engine, including railway fuel, other than taxes or levies referred to in subparagraph (d)(iii) and taxes on the sale of liquefied petroleum gas;

(9) The portion of paragraph 7(1)(h) of the English version of the Regulations before subparagraph (i) is replaced by the following:

(h) in the case of non-commercial motor vehicle licensing revenues referred to in paragraph (h) of that definition,

(10) The portion of paragraph 7(1)(i) of the English version of the Regulations before subparagraph (i) is replaced by the following:

(i) in the case of commercial motor vehicle licensing revenues referred to in paragraph (i) of that definition, revenues derived by a province from fees for licences for and registrations of commercial motor vehicles, including

(11) The portion of paragraph 7(1)(j) of the Regulations before subparagraph (i) is replaced by the following:

(j) in the case of alcoholic beverage revenues referred to in
paragraph (j) of that definition, revenues derived by a province from

(12) Paragraph 7(1)(k) of the English version of the Regulations is replaced by the following:

(k) in the case of hospital and medical care insurance premiums referred to in paragraph (k) of that definition, revenues derived by a province from taxes, levies or premiums imposed by a province for the purpose of financing hospitalization insurance or medical care insurance, other than taxes described in paragraphs (a), (d) and (y);

(13) Paragraph 7(1)(l) of the Regulations is replaced by the following:

(l) in the case of forestry revenues derived from the revenue sources referred to in subparagraphs (l)(i) and (ii) of that definition, as the case may be, a tax imposed specifically on income from logging on Crown lands or on private lands and royalties, stumpage fees, licences, rentals and fees that are related to the exploitation of forestry resources on those lands;

(14) The portion of paragraph 7(1)(m) of the English version of the Regulations before subparagraph (i) is replaced by the following:

(m) in the case of conventional new oil revenues referred to in paragraph (m) of that definition, revenues derived by a province – other than those described in paragraphs (o) and (p) – that are attributable to new oil that is from hydrocarbon deposits in the province, including revenues derived from

(15) The portion of paragraph 7(1)(n) of the English version of the Regulations before subparagraph (i) is replaced by the following:

(n) in the case of conventional old oil revenues referred to in paragraph (n) of that definition, revenues derived by a province – other than those described in any of paragraphs (m) and (o) to (r) – that are attributable to oil from hydrocarbon deposits in the province, including revenues derived from

(16) The portion of paragraph 7(1)(o) of the Regulations before subparagraph (i) is replaced by the following:

(o) in the case of heavy oil revenues referred to in paragraph (o) of that definition, revenues – other than those described in paragraph (p) – derived by a province that are attributable to oil from hydrocarbon deposits in the province, that has a density of at least 935 kg/m³ and is not third tier oil, including revenues derived from

(17) The portion of paragraph 7(1)(p) of the Regulations before subparagraph (i) is replaced by the following:

(p) in the case of mined oil revenues referred to in paragraph (p) of that definition, revenues derived by a province by means of a levy imposed by the province for the privilege of

(18) The portion of paragraph 7(1)(q) of the English version of the Regulations before subparagraph (i) is replaced by the following:

(q) in the case of the revenues referred to in paragraph (q) of that definition, revenues – other than those described in paragraphs (p) and (r) – derived by a province that are attributable to third tier oil from hydrocarbon deposits in the province, including

(19) The portion of paragraph 7(1)(r) of the English version of the Regulations before subparagraph (i) is replaced by the following:

(r) in the case of the revenues referred to in paragraph (r) of that definition, revenues – other than those described in paragraph (p) – derived by a province that are attributable to third tier oil that is from hydrocarbon deposits in the province and that has a density of at least 935 kg/m³, including

(20) The portion of paragraph 7(1)(s) of the English version of the Regulations before subparagraph (i) is replaced by the following:

(s) in the case of revenues from domestically sold natural gas and exported natural gas referred to in paragraph (s) of that definition, revenues that are attributable to gas that is from hydrocarbon deposits in the province, including those derived by a province from

(21) The portion of paragraph 7(1)(t) of the Regulations before subparagraph (i) is replaced by the following:

(t) in the case of sales of Crown leases and reservations on oil and natural gas lands referred to in paragraph (t) of that definition, revenues that are derived by a province from the granting of leases, reservations or other rights in relation to Crown land in the province for the purpose of exploration or exploitation of that land for the production of crude oil or the production of gas or gas by-products from hydrocarbon deposits;

(22) Paragraph 7(1)(u) of the English version of the Regulations is replaced by the following:

(u) in the case of oil and gas revenues referred to in paragraph (u) of that definition, revenues that are derived by a province from the exploration for and the development and production of oil, natural gas, gas by-products, helium or other gaseous products from hydrocarbon deposits in the province, including oil and gas revenues of a kind that fall within the description of a revenue source set out in any of paragraphs (m) to (s) but that cannot be attributed only to that revenue source;

(23) The portion of paragraph 7(1)(v) of the English version of the Regulations before subparagraph (i) is replaced by the following:

(v) in the case of mining revenues referred to in paragraph (v) of that definition, revenues that are derived by a province from

(24) Paragraphs 7(1)(w) to (y) of the English version of the Regulations are replaced by the following:

(w) in the case of water power rentals referred to in paragraph (w) of that definition, revenues that are derived by a province from the right to use, or the use of, water resources;

(x) in the case of insurance premium taxes referred to in paragraph (x) of that definition, taxes imposed by a province on insurance premiums of insurance companies;

(y) in the case of payroll taxes referred to in paragraph (y) of that definition, taxes imposed by a province on the payroll of employers;

(25) The portion of paragraph 7(1)(z) of the English version of the Regulations before subparagraph (i) is replaced by the following:

(z) in the case of provincial and local government property taxes referred to in paragraph (z) of that definition,

(26) Paragraph 7(1)(z.1) of the English version of the Regulations is replaced by the following:

(z.1) in the case of race track taxes referred to in paragraph (z.1) of that definition, taxes imposed by a province on amounts wagered in the province on harness and running horse races;

(27) The portion of paragraph 7(1)(z.2) of the Regulations before subparagraph (i) is replaced by the following:

(z.2) in the case of revenues from lottery ticket sales referred to in paragraph (z.2) of that definition, profits that are derived from the operation of the games described in paragraph (a) of the definition “games of chance” in section 3 and are remitted to a provincial government by

(28) The portion of paragraph 7(1)(z.3) of the English version of the Regulations before subparagraph (i) is replaced by the following:

(z.3) in the case of revenues referred to in paragraph (z.3) of that definition,

(29) The portion of paragraph 7(1)(z.4) of the English version of the Regulations before subparagraph (i) is replaced by the following:

(z.4) in the case of miscellaneous provincial taxes and revenues, provincial revenues from sales of goods and services, local government revenues from sales of goods and services, and miscellaneous local government taxes and revenues referred to in paragraph (z.4) of that definition,

(30) Paragraph 7(1)(z.5) of the Regulations is replaced by the following:

(z.5) in the case of the revenues derived from the revenue sources referred to in subparagraphs (z.5)(i), (ii) and (iii) of that definition, respectively,

(i) revenues received by Newfoundland and Labrador from the Government of Canada under the Canada-Newfoundland Atlantic Accord Implementation Act, other than those received under Part V of that Act,

(ii) revenues received by Nova Scotia from the Government of Canada under the Canada-Nova Scotia Offshore Petroleum Resources Accord Implementation Act, other than those received under Part V of that Act, and

(iii) revenues derived by a province from the province’s share of revenue from any other revenue source referred to in that definition that is shared by the Government of Canada and the province.

8. (1) Clause 8(1)(b)(ii)(A) of the Regulations is amended by striking out “and” at the end of subclause (II) and by adding the following after subclause (III):

(IV) in respect of the calculation of a fiscal equalization payment for each fiscal year beginning on or after April 1, 2010, of the Ontario Electricity Financial Corporation and the New Brunswick Electric Finance Corporation, and

(2) Paragraph 8(1)(t) of the French version of the Regulation is replaced by the following:

t) dans le cas de la vente des concessions de la Couronne et des droits de réserve sur les terrains recelant du pétrole ou du gaz naturel visés à l’alinéa 7(1)t), de l’un ou l’autre des montants suivants :

(i) si le revenu sujet à péréquation provenant de cette vente dans la province à l’égard de l’exercice est égal ou supérieur au total des produits obtenus, pour chacune des sources de revenu visées aux alinéas m), o), q), r) et s) de la définition de « source de revenu » au paragraphe 3.9(1) de la Loi, par multiplication de l’assiette de la source de revenu dans la province à l’égard de l’exercice par le taux national moyen de l’impôt applicable à cette source de revenu pour l’exercice, le revenu sujet à péréquation provenant de cette vente dans la province à l’égard de l’exercice,

(ii) si le revenu sujet à péréquation provenant de cette vente dans la province à l’égard de l’exercice est inférieur à ce total, ce total réduit du moindre des montants suivants :

(A) le montant de l’excédent du total sur le revenu,

(B) le montant de l’excédent du total visé à la subdivision (I) sur celui visé à la subdivision (II) :

(I) le total des montants pour les exercices précédents commençant le 1^er avril 1987 ou après cette date, dont chacun représente l’excédent du revenu sujet à péréquation provenant de cette vente pour la province à l’égard de chacun de ces exercices sur le total visé au sous-alinéa (i) pour chacun de ces exercices comme si ce sous-alinéa s’y appliquait,

(II) le total, pour ces exercices précédents, des montants visés à la division (A) ou de cette division, selon le cas, qui, aux termes du présent sous-alinéa, sont déduits du total visé au sous-alinéa (i);

(3) Subparagraph 8(1)(t)(i) of the English version of the Regulations is replaced by the following:

(i) if the revenue to be equalized from those sales in the province for the fiscal year is greater than or equal to the aggregate, over the revenue sources set out in paragraphs (m), (o), (q), (r) and (s) of the definition “revenue source” in subsection 3.9(1) of the Act, of the product of the revenue base for that revenue source in the province for the fiscal year and the national average rate of tax for that revenue source for the fiscal year, the revenue to be equalized from those sales in the province for the fiscal year, or

(4) Subparagraphs 8(1)(v)(i) and (ii) of the Regulations are replaced by the following:

(i) if the difference that results from subtracting calculated net profits from revenue to be equalized from mining revenues in the province for the fiscal year is greater than zero, the revenue to be equalized from mining revenues in the province for the fiscal year, and

(ii) if the difference that results from subtracting calculated net profits from revenue to be equalized from mining revenues in the province for the fiscal year is less than or equal to zero, the calculated net profits in the province for the fiscal year less the aggregate, over the preceding fiscal years beginning with fiscal year 2004-2005, of the positive amounts that resulted from the subtraction referred to in subparagraph (i) and that have not been deducted under this subparagraph for previous fiscal years, but that result may not be less than the revenue to be equalized from mining revenues in the province for the fiscal year;

(5) The description of V in paragraph 8(1)(z) of the Regulations is replaced by the following:

V is equal to the assessed market value of residential property in the province for the calendar year that ends in the fiscal year,

(6) The description of P in paragraph 8(1)(z) of the Regulations is replaced by the following:

P is equal to the population of the province for the fiscal year, as determined in accordance with section 11.

(7) The portion of paragraph 8(1)(z.4) of the Regulations before subparagraph (i) is replaced by the following:

(z.4) in the case of miscellaneous provincial taxes and revenues, provincial revenues from sales of goods and services, local government revenues from sales of goods and services, and miscellaneous local government taxes and revenues, described in paragraph 7(1)(z.4), the aggregate, over the revenue sources set out in paragraphs (a) to (k) and (x) to (z.3) of the definition “revenue source” in subsection 3.9(1) of the Act and the part of the revenue source set out in paragraph (z.5) of that definition that is not related to natural resources, of the products of

(8) Paragraph 8(1)(z.5) of the Regulations is replaced by the following:

(z.5) in the case of revenues that are shared by the Government of Canada with the provinces derived from the revenue sources described in paragraph 7(1)(z.5)(i), (ii) and (iii), respectively,

(i) revenues received by Newfoundland and Labrador from the Government of Canada under the Canada-Newfoundland Atlantic Accord Implementation Act, as determined by Statistics Canada,

(ii) revenues received by Nova Scotia from the Government of Canada under the Canada-Nova Scotia Offshore Petroleum Resources Accord Implementation Act, as determined by Statistics Canada, and

(iii) the province’s share of revenues from any other revenue source referred to in the definition of “revenue source” in subsection 3.9(1) of the Act, as determined by Statistics Canada.

9. (1) Paragraphs 9(5)(a) to (c) of the Regulations are replaced by the following:

(a) the amount of any revenue that the province or a local government paid to itself, if that amount would otherwise be included twice in the aggregate of all revenue to be equalized for all sources included in the definition “revenue source” in
subsection 3.5(1) or 3.9(1) of the Act; and

(b) the amount of any revenue that the province receives from a local government or any revenue that a local government receives from the province, if that amount would otherwise be included twice in the aggregate of all revenue to be equalized for all sources included in the definition “revenue source” in subsection 3.5(1) or 3.9(1) of the Act.

(2) Section 9 of the Regulations is amended by adding the following after subsection (6):

(7) In computing the revenue from a revenue source for a province for a fiscal year, the Minister may

(a) in relation to a revenue source referred to in paragraph (e) of the definition “revenue source” in subsection 3.5(1) of the Act or in paragraphs (l) to (w) of that definition in subsection 3.9(1) of the Act, adjust the amount set out in the certificate by adding or deducting the amount of any expense, subsidy, rebate or tax reduction incurred or granted by the government of that province in relation to that revenue source, if those amounts have not been added to or deducted from, as the case may be, the amount set out in the certificate in respect of that revenue source; and

(b) in relation to any other revenue source, deduct from the amount set out in the certificate the amount of any rebate, credit or reduction in relation to that revenue, or its components, that the province, or a local government, granted in favour of a taxpayer for the fiscal year, as determined by Statistics Canada, or, if Statistics Canada does not make the determination, as determined by the Minister, up to a maximum that reduces the amount of the taxpayer’s tax that is included in the revenue source to zero and, for the purpose of this paragraph, if the province or a local government applies a rebate, credit or reduction against the actual or estimated liability of the taxpayer for another tax that it imposes, the amount of that rebate, credit or reduction, up to a maximum that reduces the taxpayer’s liability for that other tax to zero, may be deducted from the amount that would otherwise be determined for the revenue source that includes that other tax.

10. Paragraphs (b) to (d) of subsection 10(1) of the Regulations are replaced by the following:

(b) simulating, in turn, the amounts, aggregated over all individuals in all 10 provinces, of provincial personal income tax that would be derived by all those provinces from those individuals in the taxation year under each of the provincial personal income tax systems of the 10 provinces as if those tax systems applied to the individuals in those provinces;

(c) with respect to each tax system, dividing each amount simulated under paragraph (a) for the province by the amount simulated, on the basis of the corresponding provincial tax system, under paragraph (b) for all 10 provinces;

(d) calculating a weight for the tax system of each of the 10 provinces equal to a fraction

(i) whose numerator is the revenue for the fiscal year, as set out in the certificate, from the taxes described in subparagraph 4(1)(a)(i) or paragraph 7(1)(a), as the case may be, that is derived by the province under the tax system for which the weight is being calculated, and

(ii) whose denominator is the aggregate, over the 10 provinces, of the revenue referred to in subparagraph (i);

(e) multiplying each amount calculated under paragraph (c) by the respective weight calculated under paragraph (d); and

(f) calculating the aggregate of the 10 products calculated under paragraph (e).

11. Subsections 12(1) and (2) are replaced by the following:

(1) The Chief Statistician of Canada shall, in each fiscal year, prepare and submit a certificate to the Minister on or before December 1 of the fiscal year.

(2) The information set out in the certificate shall

(a) be based on the most recent publication of Statistics Canada – or, if these Regulations require information that is not published, the most recent information of Statistics Canada – that is available on or before November 22 of the fiscal year in which the certificate is submitted; and

(b) be provided

(i) if the information is required on a fiscal year basis, for the fiscal year in which the certificate is submitted and the three prior fiscal years, or

(ii) if the information is required on a calendar year basis, for the calendar year that ends in the fiscal year in which the certificate is submitted and the three prior calendar years.

12. Sections 13 to 16 of the Regulations are replaced by the following:

Calculations and Estimates

13. The Minister shall calculate a fiscal equalization payment that may be paid to a province under sections 3.2 to 3.4 of the Act on the basis of

(a) in the case of a payment for the fiscal year that begins on April 1, 2009, the information referred to in subsection 12(3) for the fiscal years beginning on April 1, 2005, April 1, 2006, and April 1, 2007 or the calendar years beginning on January 1, 2005, January 1, 2006, and January 1, 2007, as the case may be; and

(b) in the case of a payment for any other fiscal year, the information set out in the certificate submitted in the preceding fiscal year.

14. When calculating a fiscal equalization payment or a fiscal equalization amount under section 3.6 and 3.72 of the Act, respectively, the Minister shall use the population for each province as determined by the Chief Statistician of Canada and calculate the revenues to be equalized for each revenue source and the revenue bases for each revenue source for each province

(a) for the fiscal year prior to that for which the calculation is performed, on the basis of the information set out in the certificate submitted in the fiscal year for which the calculation is performed; and

(b) for the fiscal years that are two and three years prior to that for which the calculation is performed, on the basis of the information set out in the certificate submitted in the fiscal year preceding that for which the calculation is performed.

14.1 (1) For each fiscal year, the Minister shall, in December of the preceding fiscal year, make the following estimates of payments and amounts:

(a) an estimate of the fiscal equalization payment that may be paid under section 3.6 of the Act, for the purpose of calculating an advance on that payment; and

(b) an estimate of the fiscal equalization amount to be computed under section 3.72 of the Act.

(2) The Minister shall make the estimates on the basis of the information set out in the certificate submitted in the fiscal year preceding the fiscal year for which the payment or amount is calculated.

(3) The Minister shall inform the province’s Minister of Finance of the estimate referred to in paragraph (1)(b) on or before December 31 of the fiscal year preceding that for which the estimates are made.

14.2 (1) In the case of the fiscal year that begins on April 1, 2009, if any of the information referred to in paragraph 13(a) is incorrect or is not available, the Minister shall

(a) if that information is required to determine the revenue to be equalized from a revenue source for a fiscal year, estimate that revenue on the basis of any information that is available to the Minister at the time of the calculation; and

(b) if that information is required to calculate a revenue base for a fiscal year, estimate that revenue base, by substituting in the calculation of the base the information for the latest fiscal year or calendar year, as the case may be, that is prior to the fiscal year and for which information for the revenue base is available to the Minister.

(2) If any information that is required to make a calculation or estimate referred to in paragraph 13(b) or sections 14 and 14.1 is incorrect or is not set out in the applicable certificate the Minister shall

(a) if that information is required to determine the revenue to be equalized from a revenue source for a fiscal year, estimate that revenue on the basis of any information that is available to the Minister at the time of the calculation; and

(b) if that information is required to calculate a revenue base for a fiscal year, estimate that revenue base, by substituting in the calculation of the base the information for the latest fiscal year or calendar year, as the case may be, that is prior to the fiscal year and for which information for the revenue base is set out in the certificate.

(3) If the Minister makes an estimate under paragraph (1)(b) or 2(b) of a revenue base referred to in paragraph 5(a) or (c) or any of paragraphs 8(1)(a), (d) to (f), (h), (j), (k), (z.2) and (z.3), the revenue base shall be replaced by the product of the estimate and a fraction

(a) whose numerator is one plus a fraction whose numerator is the province’s percentage of the population of all 10 provinces for the fiscal year and whose denominator is that percentage for the prior fiscal year for which information for the revenue base is either set out in the certificate or otherwise available to the Minister; and

(b) whose denominator is two.

(4) If a revenue base for a fiscal year is estimated, in accordance with paragraph (1)(b) or 2(b), or replaced, in accordance with subsection (3), on the basis of information from an earlier fiscal year, the Minister may adjust that revenue base to take into account economic factors or trends that could change the provincial share of that revenue base between that earlier fiscal year and the fiscal year.

(5) If any of the information that is required to calculate a revenue base for a fiscal year is incorrect in the certificate, or is not set out in it, or is not otherwise available, as the case may be, and the Minister is unable to estimate, in accordance with paragraph (1)(b) or 2(b), or replace, in accordance with subsection (3), the revenue base the Minister shall, after consulting with Statistics Canada, estimate that revenue base on the basis of any information that is available to the Minister.

(6) If an aggregate of the revenues of two or more revenue sources is provided on a certificate under paragraph 12(3)(c), the Minister shall determine the portion of the aggregate that is to apply to each of those revenue sources.

Elections

15. An election made by a province under subsection 3.2(2), 3.7(3) or 3.9(5) of the Act shall be communicated in writing to the Minister on or before March 1 of the fiscal year for which the election is being made.

Payments

16. If the Minister determines under sections 3.2 to 3.4 of the Act that a fiscal equalization payment is to be made to a province for a fiscal year, the Minister shall make the payment to the province in 24 equal instalments, with an instalment being made on each of the first and third working days after the 15th calendar day of each month of the fiscal year.

16.1 If the Minister determines under section 3.6 of the Act that a fiscal equalization payment is to be made to a province for a fiscal year, the Minister shall

(a) if the advances made on account of that payment are less than the payment, pay the difference to the province in six equal instalments, with an instalment being made on each of the first and third working days after the 15th calendar day of January, February and March of the fiscal year; or

(b) if the advances made on account of that payment are greater than the payment, recover the difference as an overpayment.

Adjustment Following Election

16.2 If a province makes an election under subsection 3.7(3) of the Act after the beginning of the fiscal year and the Minister determines under subsections 3.2 and 3.4 of the Act that a fiscal equalization payment is to be made to the province for that fiscal year the Minister shall

(a) adjust the payment such that amounts paid to the province for that fiscal year under section 3.6 of the Act, net of recoveries, and any advances made on account of a payment under that section, are set off against the payment to be made; and

(b) either apportion the adjusted payment equally among the remaining instalments, with an instalment being made on each of the first and third working days after the 15th calendar day of each remaining month in the fiscal year or recover any overpayment.

16.3 If the Minister determines under any of sections 3.2 to 3.4 and 3.6 of the Act that a fiscal equalization payment is to be made to a province for a fiscal year and the province makes an election under subsection 3.2(2) or 3.9(5) of the Act after the beginning of the fiscal year, the Minister shall make any necessary adjustment to the amount of the payment and shall either apportion it equally among the remaining instalments to be made to the province in the fiscal year or recover any overpayment.

Recovery of Overpayments

16.4 For the purpose of paragraph 3.93(a) of the Act, if the Minister determines that the Minister has overpaid an amount payable to a province under Part 1 of the Act, the overpayment may be recovered from that province, subject to section 41

(a) in the fiscal year for which the payment is made from any amount payable under the Act to that province; or

(b) on the request of the province, in the following fiscal year from any amount payable under the Act to that province.

Advances

Advances on Account of Payments under Section 3.6 of the Act

16.5 (1) For each fiscal year beginning after March 31, 2008, the Minister shall make an advance on account of the fiscal equalization payment that may become payable to each province to which section 3.6 of the Act applies.

(2) The advance shall be equal to an amount that is three quarters of the estimate calculated under paragraph 14.1(1)(a) and the Minister shall make the advance to the province in 18 equal instalments, with an instalment being made on each of the first and third working days after the 15th calendar day of each month from April to December of that fiscal year.

(3) If a province is receiving an advance and, prior to December 1 of a fiscal year, makes an election under subsection 3.9(5) of the Act for that fiscal year, the Minister shall

(a) revise the estimate calculated for that province under
paragraph 14.1(1)(a) to take the effect of the election into account; and

(b) adjust the advance in accordance with the revised estimate and apportion the adjustment equally among the remaining instalments of the advance.

Advances on Account of Payments under Section 3.71 of the Act

16.6 In sections 16.7 and 16.8 “period” has the same meaning as in subsection 3.71(3) of the Act.

16.7 (1) If the amount related to an advance – calculated under section 16.8 – on account of an additional fiscal equalization payment that may be paid to a province under section 3.71 of the Act for each fiscal year in the period is

(a) greater than the aggregate of all previous advances made on account of that payment less the aggregate of all amounts of those previous advances that are required to be set off against other payments to the province, the Minister shall make an advance to the province in the amount of the difference before the end of the fiscal year; or

(b) less than the aggregate of all previous advances paid for the previous fiscal years less any set-offs or recoveries for the previous fiscal years, the Minister shall set-off or recover the difference, before the end of the following fiscal year, from any payment to the province under the Act.

(2) The Minister shall calculate the advances, set-offs and recoveries for a province for a fiscal year between March 1 and March 14 of the fiscal year.

16.8 (1) The amount related to an advance on account of an additional fiscal equalization payment that may be paid to a province under section 3.71 of the Act for each fiscal year in the period shall be the amount that is the greater of zero and the amount calculated in accordance with the following formula:

(A + B + C) − (D + E + F) + (G - H)

where

A is the aggregate of the fiscal equalization amounts computed under section 3.72 of the Act for the province for each fiscal year in the period up to and including the fiscal year for which the advance is calculated,

B is the aggregate of the additional fiscal equalization offset payments and transitional payments that would be paid to the province, for each fiscal year in the period up to and including the fiscal year for which the advance is calculated, under the Nova Scotia and Newfoundland and Labrador Additional Fiscal Equalization Offset Payments Act if those payments were calculated

(i) in accordance with that Act as it read on April 1, 2007,

(ii) without regard to the restrictions set out in sections 9 and 23 of that Act, and

(iii) as if the fiscal equalization payment for the province, for each of those fiscal years, were equal to the fiscal equalization amount computed under section 3.72 of the Act,

C is the aggregate of the amounts that would be paid to the province for each fiscal year in the period up to and including the fiscal year for which the advance is calculated, under Part V of the Canada-Newfoundland Atlantic Accord Implementation Act if those amounts were calculated

(i) in accordance with that Act as it read on April 1, 2007,

(ii) as if the fiscal equalization payment for the province, for each of those fiscal years, were equal to the fiscal equalization amount computed under section 3.72 of the Act,

(iii) in accordance with subsection 174(3) of the Budget and Economic Statement Implementation Act, 2007 if the conditions described in that subsection are met, and

(iv) on the assumption that for each fiscal year for which subsection 3.72(4) of the Act were to apply by reason of paragraph 3.72(6)(a) of the Act, the amount paid to the province under Part V were zero,

D is the aggregate of the fiscal equalization payments determined to be payable to the province under sections 3.2 and 3.4 of the Act for each fiscal year in the period up to and including the fiscal year for which the advance is calculated,

E is the aggregate of the additional fiscal equalization offset payments and transitional payments that would be paid to the province under the Nova Scotia and Newfoundland and Labrador Additional Fiscal Equalization Offset Payments Act for each fiscal year in the period up to and including the fiscal year for which the advance is calculated, if those payments were calculated without regard to the restrictions set out in sections 9 and 23 of that Act,

F is the aggregate of the amounts determined to be payable to the province under Part V of the Canada-Newfoundland Atlantic Accord Implementation Act for each fiscal year in the period up to and including the fiscal year for which the advance is calculated,

G is the amount by which, for the fiscal year beginning on April 1, 2011, $830,000,000 in the case of Nova Scotia, and $2,000,000,000 in the case of Newfoundland and Labrador, exceeds the aggregate of

(i) the aggregate of the additional fiscal equalization offset payments determined to be payable to the province under the Nova Scotia and Newfoundland and Labrador Additional Fiscal Equalization Offset Payments Act, calculated without regard to the restrictions set out in sections 9 and 23 of that Act, for each fiscal year beginning on or after April 1, 2004 up to and including the earlier of the fiscal year preceding the first fiscal year of the period and the fiscal year beginning on April 1, 2011, and

(ii) the aggregate of the additional fiscal equalization offset payments that would be payable to the province under that Act for each fiscal year in the period up to and including the fiscal year beginning on April 1, 2011, if the payments were calculated

(A) in accordance with that Act as it read on April 1, 2007,

(B) without regard to the restrictions set out in sections 9 and 23 of that Act, and

(C) as if the fiscal equalization payment for the province, for each of those fiscal years, were equal to the fiscal equalization amount calculated under section 3.72 of the Act,

H is the amount by which, for the fiscal year beginning on April 1, 2011, $830,000,000 in the case of Nova Scotia, and $2,000,000,000 in the case of Newfoundland and Labrador, exceeds the aggregate of the additional fiscal equalization offset payments determined to be payable to the province under the Nova Scotia and Newfoundland and Labrador Additional Fiscal Equalization Offset Payments Act, calculated without regard to the restrictions set out in sections 9 and 23 of that Act, for the fiscal year beginning on April 1, 2004 and for each subsequent fiscal year up to and including the fiscal year beginning on April 1, 2011.

(2) However, if any of the conditions set out in subsection (3) are met, the calculation shall be made in accordance with subsection (1) but with the following modifications:

(a) the description of B shall be read without reference to subparagraph (ii);

(b) the description of E shall be read without regard to the portion of the phrase that reads, “if those payments were calculated without regard to the restrictions set out in sections 9 and 23 of that Act”; and

(c) the amounts determined for G and H are deemed to be equal to zero;

(3) The conditions referred to in subsection (2) are the following:

(a) the first fiscal year of the period for Nova Scotia or Newfoundland and Labrador, as the case may be, is a fiscal year beginning before April 1, 2011 and the fiscal equalization payment under Part I of the Act paid to that province for that first fiscal year is determined under paragraph 3.2(1)(a) of the Act and the amount of that fiscal equalization payment, after application of section 3.4 of the Act, is less than

( A - B ) / C

where

A is $830,000,000 for Nova Scotia or $2,000,000,000 for Newfoundland and Labrador,

B is the aggregate of the amounts of additional fiscal equalization offset payments that would be paid to that province for each fiscal year beginning on or after April 1, 2004 up to and including the first fiscal year of the period under the Nova Scotia and Newfoundland and Labrador Additional Fiscal Equalization Offset Payments Act, calculated without regard to the restrictions set out in sections 9 and 23 of that Act, and

C is the number of fiscal years from the second fiscal year in the period for that province up to and including the fiscal year beginning April 1, 2011; or

(b) the first fiscal year of the period for Nova Scotia or Newfoundland and Labrador, as the case may be, is a fiscal year beginning before April 1, 2011 and the fiscal equalization payment under Part I of the Act paid to that province for that first fiscal year is determined under paragraph 3.2(1)(b) of the Act; or

(c) the period for Nova Scotia or Newfoundland and Labrador, as the case may be, begins on or after April 1, 2011.

13. (1) The portion of section 18 of the Regulations before paragraph (a) is replaced by the following:

18. The territorial revenues that are derived from, or are deemed to be derived from, the revenue sources referred to in paragraphs (a) to (g) of the definition “revenue source” in subsection 4(1) of the Act are

(2) The portion of paragraph 18(a) of the English version of the Regulations before subparagraph (i) is replaced by the following:

(a) in the case of revenues derived from personal income referred to in paragraph (a) of that definition,

(3) The portion of paragraph 18(b) of the English version of the Regulations before subparagraph (i) is replaced by the following:

(b) in the case of revenues derived from corporate income and government business enterprises referred to in paragraph (b) of that definition,

(4) Subparagraph 18(b)(ii) of the Regulations is amended by striking out “and” at the end of clause (A) and by replacing clause (B) with the following:

(B) an enterprise engaged, entirely or primarily, in the marketing of oil or natural gas, and

(C) an enterprise, board, commission or authority that is engaged in the administration of a territorial lottery;

(5) Paragraphs 18(c) to (e) of the English version of the Regulations are replaced by the following:

(c) in the case of revenues derived from tobacco referred to in paragraph (c) of that definition, revenues derived by a territory by means of a specific tax imposed by the territory on final purchasers of tobacco and tobacco products;

(d) in the case of revenues derived from motive fuel taxes from the sale of gasoline referred to in paragraph (d) of that definition, revenues derived by a territory from taxes imposed by the territory on final purchasers of gasoline used in an internal combustion engine, including aviation fuel, other than taxes on the sale of liquefied petroleum gas;

(e) in the case of revenues derived from motive fuel taxes from the sale of diesel fuel referred to in paragraph (e) of that definition, revenues derived by a territory from taxes imposed by the territory on final purchasers of diesel fuel used in an internal combustion engine, including railway fuel, other than taxes on the sale of liquefied petroleum gas;

(6) The portion of paragraph 18(f) of the English version of the Regulations before subparagraph (i) is replaced by the following:

(f) in the case of revenues derived from the sale of alcoholic beverages referred to in paragraph (f) of that definition, revenues derived by a territory from

(7) Paragraph 18(g) of the English version of the Regulations is replaced by the following:

(g) in the case of revenues derived from payroll taxes referred to in paragraph (g) of that definition, taxes imposed by a territory on the payroll of employers.

14. Paragraphs 21(1)(b) to (d) of the Regulations are replaced by the following:

(b) simulating, in turn, the amounts, aggregated over all individuals in all 10 provinces and three territories, of provincial and territorial personal income tax that would be derived by all those 10 provinces and three territories from those individuals in the taxation year under each of the personal income tax systems of the 10 provinces and three territories as if those tax systems applied to the individuals in those provinces and territories;

(c) with respect to each tax system, dividing each amount simulated under paragraph (a) for the territory by the amount simulated, on the basis of the corresponding province’s or territory’s tax system, under paragraph (b) for all 10 provinces and three territories;

(d) calculating a weight for the tax system of each of the 10 provinces and three territories equal to a fraction

(i) whose numerator is the revenue for the fiscal year, as set out in the certificate, from the taxes imposed by a province or territory on the income of individuals, as described in subparagraph 18(a)(i), that is derived by the province or the territory under the tax system for which the weight is being calculated, and

(ii) whose denominator is the aggregate, over the 10 provinces and the three territories, of the revenue referred to in
subparagraph (i);

(e) multiplying each amount calculated under paragraph (c) by the respective weight calculated under paragraph (d); and

(f) calculating the aggregate of the 13 products calculated under paragraph (e).

15. The portion of subsection 27(1) of the English version of the Regulations before paragraph (a) is replaced by the following:

27. (1) For the purposes of this Part, the Chief Statistician of Canada shall determine the population of a province for a fiscal year in the following manner:

16. Subsections 28(1) to (2) of the Regulations are replaced by the following:

28. (1) The Chief Statistician of Canada shall, in each fiscal year, prepare and submit a certificate to the Minister on or before December 1 of the fiscal year.

(2) The information set out in the certificate shall

(a) be based on the most recent publication of Statistics Canada – or, if these Regulations require information that is not published, the most recent information of Statistics Canada – that is available on or before November 22 of the fiscal year in which the certificate is submitted; and

(b) be provided

(i) if the information is required on a fiscal year basis, for the fiscal year in which the certificate is submitted and the three prior fiscal years, or

(ii) if the information is required on a calendar year basis, for the calendar year that ends in the fiscal year in which the certificate is submitted and the three prior calendar years.

17. Sections 29 and 30 of the Regulations are replaced by the following:

Calculation

29. The Minister shall calculate a territorial formula financing payment that may be paid to a territory under subsection 4.1(1) of the Act on the basis of

(a) in the case of a payment for the fiscal year that begins on April 1, 2008, the information referred to in subsection 28(3) for each of the fiscal years or calendar years set out in paragraph 28(2)(b); and

(b) in the case of a payment for any other fiscal year, the information set out in the certificate submitted in the preceding fiscal year.

30. (1) If any information that is required to make a calculation referred to in section 29 is incorrect or is not set out in the applicable certificate the Minister shall

(a) if that information is required to determine the revenue to be equalized from a revenue source for a fiscal year, estimate that revenue on the basis of any information that is available to the Minister at the time of the calculation; and

(b) if that information is required to calculate a revenue base for a fiscal year, estimate that revenue base, by substituting in the calculation of the base the information for the latest fiscal year or calendar year, as the case may be, that is prior to the fiscal year and for which information for the revenue base is set out in the certificate.

(2) If the Minister makes an estimate under paragraph (1)(b) of a revenue base referred to in paragraph 19(1)(a), (c), (d) or (f), the revenue base shall be replaced by the product of the estimate and a fraction

(a) whose numerator is one plus a fraction whose numerator is the territory’s percentage of the population of all 10 provinces and three territories for the fiscal year and whose denominator is that percentage for the prior fiscal year for which information for the revenue base is set out in the certificate; and

(b) whose denominator is two.

(3) If a revenue base for a fiscal year is estimated, in accordance with paragraph (1)(b), or replaced, in accordance with subsection (2), on the basis of information from an earlier fiscal year, the Minister may adjust that revenue base to take into account economic factors or trends that could change the territorial share of that revenue base between that earlier fiscal year and the fiscal year.

(4) If any of the information that is required to calculate a revenue base for a fiscal year is incorrect in the certificate, or is not set out in it, and the Minister is unable to estimate, in accordance with
paragraph (1)(b), or replace, in accordance with subsection (2), the revenue base the Minister shall, after consulting with Statistics Canada, estimate that revenue base on the basis of any information that is available to the Minister.

(5) If an aggregate of the revenues of two or more revenue sources is provided on a certificate under paragraph 28(3)(d), the Minister shall determine the portion of the aggregate that is to apply to each of those revenue sources.

18. (1) Subsections 41(a) and (b) of the Regulations are replaced by the following:

(a) the net total of all underpayments and overpayments in relation to the following payments made under the Act, any regulation made under the Act or a tax collection agreement concluded under the Act, that are shown in that fiscal year to have been made in relation to each previous year within the period beginning on April 1, 1994 and ending on March 31, 2013:

(i) fiscal equalization payments, other than additional fiscal equalization payments made under section 3.71 of the Act,

(ii) fiscal stabilization payments, and

(iii) income tax payments under tax collection agreements; and

(b) the amount of any overpayment that is shown in that fiscal year to have been made in relation to that fiscal year of fiscal equalization payments, fiscal stabilization payments and income tax payments under tax collection agreements.

(2) Subsections 41(3) and (4) of the Regulations are replaced by the following:

(3) If, after subtracting the amount recovered from the province in the fiscal year in respect of the net aggregate of overpayments, there remains an outstanding balance for the net aggregate of overpayments, that balance shall be deferred until the following fiscal year and be taken into account when calculating the net total referred to in paragraph (1)(a) for that following fiscal year.

(4) Despite subsection (2), if any portion of the deferred outstanding balance remains outstanding at the end of the second fiscal year following the fiscal year in which the recovery of that net aggregate of overpayments was first subject to the amounts set out in subsection (2), it shall be recovered during the fiscal year that immediately follows that second fiscal year.

COMING INTO FORCE

19. These Regulations come into force on the day on which they are registered.

REGULATORY IMPACT
ANALYSIS STATEMENT

(This statement is not part of the regulations.)

Issue and objectives

The Federal-Provincial Fiscal Arrangements Act (the “Act”) provides the statutory authority for major fiscal transfers from the federal government to the provinces and territories, including Equalization and Territorial Formula Financing (TFF). Equalization is meant to enable all provinces to provide reasonably comparable public services at reasonably comparable levels of taxation. TFF provides territorial governments with funding to support public services comparable to those provided by provinces while taking into account the higher cost of providing programs and services in the north.

The Budget Implementation Act, 2007 introduced changes to the Act that put in place renewed Equalization and Territorial Formula Financing programs. One of the changes made to the Equalization program was to give Nova Scotia and Newfoundland and Labrador the option of receiving Equalization payments based on the new Equalization formula (the standard formula applicable to all other provinces) or based on a previous formula. The changes to the Act were passed by Parliament and received Royal Assent on June 22, 2007. The corresponding Federal-Provincial Fiscal Arrangements Regulations, 2007 (the “Regulations”) were made in December 2007.

Subsequently, the Budget and Economic Statement Implementation Act, 2007 (Bill C-28) introduced further changes to the Act to provide additional fiscal equalization payments (“cumulative-best-of insurance”) for Nova Scotia and, potentially, Newfoundland and Labrador and to alter the timing of calculations of fiscal equalization payments under the previous formula (which is now, after Nova Scotia has effectively elected the new formula, available only to Newfoundland and Labrador for calculation of its payments). The amendments also made certain other clarifying changes to the Act and to the Canada-Newfoundland Atlantic Accord Implementation Act relating to the determination of fiscal equalization payments, TFF payments, and offshore offset payments. Bill C-28 was passed by Parliament and received Royal Assent on December 14, 2007.

The primary objective of this regulatory action is to put in place new regulatory provisions to implement the changes to the Equalization program brought about by Bill C-28. In addition, a number of amendments to the existing Regulations are made:

• As a result of Bill C-28, certain references to the Act in the Regulations are no longer valid and some terminology no longer matches the enabling legislation. This regulatory action restores consistency between the Regulations and the Act.
• Bill C-28 expanded and otherwise altered the regulation-making authorities under the Act to make it possible to increase the specificity and transparency of the Regulations. The regulatory amendments make use of those altered regulation-making authorities to clarify certain provisions of the Regulations and to make an amendment to the Act.
• An amendment is made to remove a requirement on the Minister to use data that will be provided by Statistics Canada in a certificate no later than December 1, 2008 for the calculation of fiscal equalization payments under the new formula for 2009-10.
• Various housekeeping amendments to the Regulations are made at the same time to update provisions that are now outdated and provide greater clarity.
• Some minor policy changes are implemented to reflect evolving taxing practices of provinces (in particular, the implementation of carbon taxes in some provinces) and to otherwise improve the measurement of revenues and tax bases of provinces and territories.

Also, some amendments and additions related to the timing of calculations and payments are made to fiscal equalization offshore offset payments regulations.

Description

This regulatory action amends the Regulations to establish the timing and manner by which advances on account of additional fiscal equalization payments (“cumulative-best-of insurance”) to Nova Scotia and Newfoundland and Labrador will be determined. It also makes provisions for a preliminary estimate of calculations of fiscal equalization payments under section 3.6 of the Act (i.e., payments calculated in accordance with the previous formula) and for advances on account of those payments based on the preliminary estimate. It establishes the timing of estimates related to advances on account and specifies which Statistics Canada certificates are to be used for these estimates. It also establishes the manner in which final calculations of payments under section 3.6 are to be made, including which certificates are to be used.

For 2009-10, an amendment is made to remove the obligation on the Minister to use a certificate for the calculation of payments under sections 3.2 to 3.4 of the Act (i.e., payments calculated under the new formula). This amendment is required because the Minister has already made his determination of payments under sections 3.2 to 3.4 for 2009-10. Payment amounts have been communicated to provinces to provide them with greater certainty as to their payments for 2009-10 with the goal of assisting them in their budget planning during what is expected to be an exceptionally volatile period. In the absence of this amendment, there is a potential for inconsistency between the amounts already announced to Provincial Finance Ministers and the calculations that must, in accordance with the Act, be completed before the end of December.

A new regulation-making authority, introduced by Bill C-28, is used to formally split two revenue sources (forestry revenues and revenues shared by the Government of Canada and provinces) through an amendment to the Act. This change will have no substantive impact on the calculation of payments but increases transparency with respect to the treatment of these revenues.

Expanded regulation-making authority introduced by Bill C-28 is also used to make recoveries of Equalization overpayments subject to the recovery limits set out in section 41 of the Regulations. Several other matters respecting the recovery of overpayments are prescribed.

Small changes are made to sections of the Regulations dealing with the personal income tax base (Equalization and TFF), property tax base, and mining base to clarify the calculations related to these bases. The definition of revenues derived from corporate income and government business enterprises for TFF is also clarified. None of these changes will have a substantive impact on Equalization or TFF payments.

Policy changes are made with respect to the definition of “electricity enterprise” and the treatment of the net income of electricity financing corporations in Ontario and New Brunswick. Changes are also made to allow the Equalization program to deal with recently introduced provincial carbon taxes.

To ensure consistent and equitable treatment of natural resource revenues across provinces, the Minister is given expanded discretion to make adjustments to natural resource revenues subject to equalization as set out in the certificate from Statistics Canada.

Finally, changes are made to the Newfoundland and Labrador Offshore Revenue Fiscal Equalization Offset Payments Regulations to bring the timing of the calculation of fiscal equalization offset payments to Newfoundland and Labrador under the Canada-Newfoundland Atlantic Accord Implementation Act into synchronization with the calculation of fiscal equalization payments. A new set of regulations, the Nova Scotia and Newfoundland and Labrador Additional Fiscal Equalization Offsets Payments Regulations, is also created to prescribe the time and manner of making additional fiscal equalization offset payments under the Nova Scotia and Newfoundland and Labrador Additional Fiscal Equalization Offset Payments Act to Newfoundland and Labrador and to Nova Scotia.

Rationale

The regulatory amendments are required so that the Minister can calculate, by the end of December, Equalization and TFF payments as well as advances on account in respect of these payments for 2009-10 as required under the Act.

Calculations for the following have not yet been completed and require completion of the regulatory action: TFF payments for 2009-10, Equalization payments under section 3.6 of the Act for 2008-09, advances on account of Equalization payments under section 3.6 of the Act for 2009-10, advances on account of additional Equalization payments for 2009-10, and offshore offset payments for 2009-10. The largest of these payments are the TFF payments. Table 1 sets out TFF payments for 2008-09.

On November 3, 2008, the Minister announced that a ceiling is to be imposed on section 3.2 to 3.4 Equalization payments. The Minister also announced the payments that will be made to each province under sections 3.2 to 3.4 of the Act for 2009-10. Legislation to authorize these payments will be tabled in the near future for consideration by Parliament. Table 1 shows Equalization payments for 2008-09 and the announced payments for 2009-10.

Table 1

Equalization and TFF Payments

(Millions of Dollars)

The policy changes related to the calculation of certain bases and revenue sources that are included as part of this regulatory action are not expected to have any significant impact on Equalization payments, TFF payments, or offshore offset payments to provinces or territories.

This regulatory action has no direct anticipated impact on market efficiency, competition, income distribution, inflation, employment, or the environment. There are no compliance costs to the private sector.

Consultation

All provinces and territories have been fully informed and consulted in regards to these regulatory amendments. Provincial and territorial government officials have not expressed any concerns with, or opposition to, them.

Implementation, enforcement and service standards

Not applicable.

Contacts

Arndt Vermaeten / Daniel MacDonald
Department of Finance
Federal-Provincial Relations Division
15th Floor, East Tower
L’Esplanade Laurier
140 O’Connor Street
Ottawa, Ontario
K1A 0G5
Telephone: 613-943-0917