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Regional Development Incentives Regulations, 1974 (C.R.C., c. 1388)

Regulations are current to 2023-11-14

Regional Development Incentives Regulations, 1974

C.R.C., c. 1388

REGIONAL DEVELOPMENT INCENTIVES ACT

Regulations Respecting Regional Development Incentives

Short Title

 These Regulations may be cited as the Regional Development Incentives Regulations, 1974.

Interpretation

  •  (1) In these Regulations,

    Act

    Act means the Regional Development Incentives Act; (Loi)

    eligible assets

    eligible assets means the assets approved by the Minister as forming the whole or a part of a facility or commercial facility but does not include

    • (a) land,

    • (b) passenger motor vehicles as determined by the Minister,

    • (c) means of transportation other than passenger motor vehicles as determined by the Minister that, in the opinion of the Minister, are not used primarily for the facility or commercial facility,

    • (d) assets that, in the opinion of the Minister, are normally considered to be a charge against income in the year in which they are acquired, and

    • (e) patents, franchises, copyrights and goodwill; (actif admissible)

    equity

    equity means the aggregate of

    • (a) the share capital,

    • (b) earned surplus,

    • (c) contributed surplus,

    • (d) other surplus or deficit accounts,

    • (e) shareholders’ loans that are subordinated to all other liabilities, and

    • (f) the proprietor’s or partner capital accounts, less such accounts as, in the opinion of the Minister, unreasonably inflate the net worth of the applicant; (capital effectif)

    lessor

    lessor means a lessor that is a company incorporated in Canada and subject to Canadian income tax law and that is the owner of assets leased to an applicant. (bailleur)

  • (2) For the purposes of the Act and these Regulations,

    commercial operation

    commercial operation means any commercial undertaking other than

    • (a) an initial processing operation or any operation described in paragraphs (a) to (d) of the definition initial processing operation,

    • (b) a manufacturing or processing operation or any operation described in paragraphs (a) to (l) of the definition manufacturing or processing operation, or

    • (c) an operation in a resource-based industry; (entreprise commerciale)

    initial processing operation

    initial processing operation means an operation the product of which is a fossil fuel or a material mainly used for further processing or manufacturing, and includes the refining of petroleum, the production of newsprint and the processing of ores to form mineral concentrates, but does not include

    • (a) the processing by roasting, leaching or smelting of mineral concentrates to produce metals,

    • (b) the processing of wood by the sulphite process into bleached sulphite pulp in a pulp mill that prior to January 1, 1972 produced dissolving and high alpha cellulose pulp on a regular basis,

    • (c) the converting of wood pulp into paperboard or paper other than newsprint, or

    • (d) the processing, other than petroleum refining, of a product resulting in a significant chemical change in the principal material used; (entreprise de transformation initiale)

    manufacturing or processing operation

    manufacturing or processing operation means an operation whereby any goods, products, commodities or wares are created, fabricated, refined or made more marketable, but does not include

    • (a) the merchandising of any goods, products, commodities or wares except where they are products of, and their merchandising is integral with, an operation whereby they are created, fabricated, refined or made more marketable,

    • (b) the growing, catching or harvesting of any natural or cultivated product of nature,

    • (c) the extracting of minerals by any method,

    • (d) the production of energy except as an integral part of and solely for use in an operation whereby any goods, products, commodities or wares are created, fabricated, refined or made more marketable,

    • (e) the mixing of concrete or asphalt if, in the opinion of the Minister, such operation is carried out to a significant degree for direct application in plastic form to roadway paving or for direct use in construction in metropolitan and surrounding areas,

    • (f) salt or potash extraction,

    • (g) any mobile manufacturing or processing operation, except where the applicant agrees to use the assets of the operation for a period of at least five years in such area of the designated region as is specified by the Minister,

    • (h) construction work,

      • (i) repairing as distinct from rebuilding,

    • (j) the rendering of consumer services,

    • (k) publishing other than printing, and

      • (l) the manufacture of primary petrochemicals from any source of hydrocarbon including the manufacture of methanol, ethanol, ethylene, propylene, butadiene, butylenes, benzene, toluene, xylenes and ammonia; (entreprise de fabrication ou de transformation)

    resource-based industry

    resource-based industry means an industry that uses as a principal material a material

    • (a) the original location of which is not the consequence of human design, and

    • (b) that is in or close to its natural state. (industrie basée sur une ressource naturelle)

  • SOR/83-21, s. 1

Application

 These Regulations apply to any application for a development incentive received by the Minister

Foreign Investment Review Act

 The Minister shall not authorize a development incentive or loan guarantee to a person who is a noneligible person as defined in the Foreign Investment Review Act, unless that person has complied with the requirements of that Act.

Product Not Previously Manufactured or Processed in an Operation

 No product shall be determined to be a product not previously manufactured or processed in an operation unless, in the opinion of the Minister, on the date of application for a development incentive for the expansion of a facility to enable the manufacturing or processing of the product,

  • (a) the product is significantly different from any product that on that date is, or within the three years immediately preceding that date was, being manufactured or processed in the operation of which the facility constitutes the necessary components; and

  • (b) the product cannot be economically manufactured or processed in that operation without the acquisition of additional assets.

Approved Capital Costs

  •  (1) If the amount of a development incentive is based only on approved capital costs, those costs shall include only the approved capital costs of the eligible assets that are installed and utilized in a facility not later than 24 months after the date on which the facility, as established, expanded or modernized, is brought into commercial production.

  • (2) If the amount of a development incentive is based in part on the number of jobs created directly in the operation of a facility that is established or expanded to enable the manufacturing or processing of a product not previously manufactured or processed in the operation, the approved capital costs of the facility shall include only the approved capital costs of the eligible assets that are installed and utilized therein not later than 36 months after the date on which the facility, as established or expanded, is brought into commercial production.

  • (3) Subject to subsection (4), the approved capital costs of eligible assets shall be determined by aggregating

    • (a) the cost to the applicant of each asset to the extent that the cost does not, in the opinion of the Minister, exceed the fair market value of the asset;

    • (b) such capital expenditures as, in the opinion of the Minister, have been or are to be reasonably incurred and paid by the applicant as direct costs of designing, acquiring, constructing, transporting and installing the asset, and of insuring the asset during the construction period; and

    • (c) such capital expenditures as, in the opinion of the Minister, have been or are to be reasonably incurred and paid by the applicant or a lessor as

      • (i) direct costs of design, acquisition, construction, transportation and installation, and

      • (ii) insurance during the construction period,

      of machinery and equipment leased by the applicant, where

      • (iii) the machinery and equipment is leased for its economic life,

      • (iv) the lease includes an option to purchase the machinery and equipment at the fair market value prevailing at the time of exercising the option, and

      • (v) in the opinion of the Minister, the inclusion of such leased machinery and equipment as eligible assets for the purpose of a development incentive or a loan guarantee will result in an appropriately lower leasing charge to the applicant.

  • (4) Where a development incentive has been authorized in respect of a facility, the Minister shall not approve any capital costs of that facility that are in excess of 125 per cent of the capital costs that were accepted by the Minister for the purpose of the authorization unless the applicant, before incurring such excess capital costs, obtained the agreement of the Minister to include such excess capital costs in determining the amount of the approved capital costs.

  • (5) If, in the opinion of the Minister, the eligible assets installed or to be installed in a facility create a significant change in the plan proposed at the time of authorization of the development incentive, the Minister may reconsider the authorization and amend or withdraw the development incentive previously authorized.

Jobs Created Directly in an Operation

 The number of jobs created directly in the operation on which a development incentive is based shall

  • (a) include only those involving employment that relates to the manufacturing or processing of products for the production of which the facility is established or expanded; or

  • (b) in the case of the expansion of a facility, be equal to the number of jobs included in paragraph (a) minus

    • (i) the number of persons normally employed in or based upon the facility as it was constituted at the date of the application for the development incentive, or

    • (ii) such number of persons as the Minister considers could reasonably have been expected to continue in that facility if the expansion had not taken place,

    whichever is the lesser.

Maximum Number of Jobs

  •  (1) Notwithstanding section 7, for the purposes of paragraph 5(4)(a) of the Act, the number of jobs determined by the Minister to have been created directly in an operation shall be the greater quotient obtained by dividing

    • (a) the number of man days or fractions thereof, determined by the Minister to have been paid, or deemed by the Minister pursuant to section 10 to have been paid, by the applicant with respect to the employment of persons in or based on the facility during the third year after the date on which the facility is brought into commercial production,

    by

    • (b) the number of days that the facility is determined by the Minister to have been in operation during the third year referred to in paragraph (a), or

    by dividing

    • (c) the average of the number of man days or fractions thereof, determined by the Minister to have been paid, or deemed by the Minister pursuant to section 10 to have been paid, by the applicant with respect to the employment of persons in or based on the facility during the second and third years after the date on which the facility is brought into commercial production,

    by

    • (d) the average of the number of days that the facility is determined by the Minister to have been in operation during the second and third years referred to in paragraph (c).

  • (2) In determining the number of man days and the number of days that the facility has been in operation for the purposes of subsection (1), the Minister may make the necessary adjustments to take into account such circumstances as he determines to be appropriate.

  • SOR/78-893, s. 1

Determination of Amounts of Development Incentives

  •  (1) Subject to subsection (2), in determining the amount of a development incentive that has been authorized under these Regulations, the Minister shall take into account

    • (a) the number of jobs created, or

    • (b) the wages and salaries determined by him to have been paid by the applicant with respect to the employment of persons in or based on the facility,

    averaged over the second and third years after the date on which the facility is brought into commercial production and adjusted to take into account such circumstances as he determines to be appropriate.

  • (2) In determining the amount of a development incentive, the Minister shall not take into account

    • (a) any wages or salaries that, in his opinion, are excessive for the purposes of this section; or

    • (b) any amounts that increase the number of jobs or the total wage and salary bill of the applicant to an amount that is in excess of 125 per cent of the amount specified by the Minister for the number of jobs or the wage and salary bill in the authorization of the development incentive unless the creation of such jobs or the expenditure of such amounts was given approval by the Minister prior to the undertaking of the proposed plan or change thereto.

  • SOR/78-893, s. 2

 For the purposes of sections 7, 8 and 9, man days and wages and salaries paid by an assignee of the applicant’s rights, or by a person having a management or service contract with the applicant or such assignee, may be deemed by the Minister to have been paid by the applicant.

Working Capital and Capitalized Expenses

  •  (1) The amount of working capital to be included in the capital to be employed in an operation shall be such amount of the excess of current assets over current liabilities other than loans as, in the opinion of the Minister, will be required for the operation when the operation is in production at its intended full capacity.

  • (2) The amount of capitalized expenses that may be included in the total capital costs of a facility or commercial facility shall be such expenditures, other than the costs of fixed assets, as in the opinion of the Minister are

    • (a) necessarily incurred in bringing the facility or commercial facility into commercial production or operation; and

    • (b) in accordance with normal accounting practice, treated as capital expenditures and not as charges against income.

Conditions and Limitations

  •  (1) A development incentive for an undertaking that the Minister determines to be an undertaking described in subsection (2) may only be authorized on condition that the development incentive is repayable in whole or in part at such time or times as the Minister prescribes in the offer of the development incentive and subject to the Act and the other provisions of these Regulations.

  • (2) For the purposes of subsection (1), an undertaking described in this subsection is an undertaking

    • (a) that has a high risk of failure but for which there is a commensurate opportunity to achieve a high rate of return;

    • (b) whose rate of return would be too marginal without a development incentive but for which the authorizing of a development incentive that is not repayable would not be justifiable, taking into account the possible rate of return;

    • (c) that is not capable of proceeding because reasonable arrangements cannot be made for adequate financing by means of a loan guarantee under the Act or by other means; or

    • (d) that is of such a nature that it merits the offer of a development incentive but for which

      • (i) the authorizing of a development incentive that is not repayable would not be in the public interest, or

      • (ii) the applicant does not wish to receive a development incentive that is not repayable.

 

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