The 1999 Ontario Budget announced the Ontario School Bus Safety Tax Incentive. The purpose of the incentive is to encourage school bus operators to replace old buses with buses that meet the new 1998 standard set by the Canadian Standards Association (CSA).
The rules discussed in this bulletin are contained in section 13.4 of the Corporations Tax Act. This bulletin is provided as a guide for taxpayers. It is not intended as a substitute for the legislation. For precise details, the reader should consult the Corporations Tax Act.
Corporations purchasing an eligible school bus after May 4, 1999 and before May 5, 2002 may be eligible for a one-time deduction from Ontario income tax for the cost of acquiring the bus. The new bus must be used in Ontario to transport children or to transport adults with a developmental disability.
The Ontario School Bus Safety Tax Incentive (OSBSTI) is a tax deduction equal to 30 per cent of the capital cost of an eligible school bus acquired by a corporation. It is a once-only claim and is in addition to the normal capital cost allowance available for the eligible school bus.
Where a corporation allocates part of its taxable income to a jurisdiction other than Ontario, the deduction is grossed-up to provide a full deduction from Ontario source income. This is achieved by dividing the capital cost of the eligible school bus by the Ontario allocation factor as follows:
OSBSTI = (A / B) × 30%, where
A = the capital cost of an eligible school bus acquired during the taxation year, and
B = the Ontario allocation factor for the taxation year.
For example: If during a taxation year a corporation purchases eligible buses at a cost of $150,000 and the corporation's Ontario allocation factor is 50 per cent, its OSBSTI for the taxation year would be $90,000 (($150,000 / 50%) × 30%). After applying the Ontario allocation factor in computing the corporation's portion of taxable income attributed to Ontario, the actual deduction from Ontario income is $45,000 ($90,000 × 50%).
An eligible school bus is a vehicle acquired by a corporation after May 4, 1999 and before May 5, 2002 that meets the following criteria:
- It is new and has not been used by any person prior to its acquisition by the corporation;
- It is a school bus as defined under subsection 175 (1) of the Highway Traffic Act that meets the requirements stipulated under sections 1 and 3 of Regulation 612 made under that Act and conforms to the CSA Standard D250 - 1998;
- It is used in Ontario to transport children or to transport adults with a developmental disability; and
- The capital cost of the vehicle is included by the corporation in Class 10 of Schedule II to the regulations made under the Income Tax Act (Canada).
If a corporation has received or expects to receive federal, provincial or municipal government assistance for the eligible school bus at the time the corporation is required to deliver its Ontario tax return for the taxation year, the corporation must reduce the capital cost of the eligible school bus by the amount of the assistance before calculating the incentive for the taxation year. However, if any portion of the government assistance is repaid in a subsequent year, the corporation is entitled to an additional OSBSTI equal to 30 per cent of the repayment in the year the repayment is made.
A corporation may, in computing its OSBSTI for a taxation year, include its portion of the capital cost of an eligible school bus acquired by a partnership in which the corporation is a member. The eligible school bus must be acquired during the partnership's fiscal period ending in the corporation's taxation year.
No OSBSTI may be claimed by a corporation if the school bus is purchased by a limited partnership in which the corporation is a member.
A portion of the OSBSTI claimed will be recaptured if, within 36 months after the day the eligible school bus is acquired, the corporation or partnership in which the corporation is a member:
- Disposes of the eligible school bus; or
- Begins to use the eligible school bus primarily for a purpose other than transporting, in Ontario, children or adults with a developmental disability.
The recapture is included in computing the corporation's income in the taxation year in which either event 1 or 2 above occurs.
The amount of the recapture is determined using the following formula:
Recapture = [(A / B) × 30%] × [(1096* − C) / 1096*], where
* 1096 = number of days in 36 months after the day the eligible school bus is acquired.
A = the amount of the corporation's capital cost of the eligible school bus that was previously included in determining the corporation's OSBSTI,
B = the corporation's Ontario allocation factor for the taxation year in which either event 1 or 2 above occurs, and
C = the number of days that the corporation owned the eligible school bus before disposing of it or began to use it for a purpose other than transporting, in Ontario, children or adults with a developmental disability.
For example: A corporation acquires eligible school buses for $150,000 on June 1, 1999 and sells the buses on May 31, 2000. The corporation's taxation year ends on December 31 and its Ontario allocation factor for the 2000 taxation year is 50 per cent. The recapture to be included in calculating income for the 2000 taxation year is:
[($150,000 / 0.5) × 0.3] × [(1096 − 366) /1096] = $59,945
After applying the Ontario allocation factor in computing the corporation's taxable income attributed to Ontario, the actual recapture is $29,973 ($59,945 × 50%).
The recapture does not apply in the following situations:
- The corporation or partnership sells the business in which the school bus was used and the purchaser continues to carry on that business;
- The corporation is in bankruptcy or receivership or is insolvent, and the school bus is disposed of in the course of liquidating the business; or
- The eligible school bus is transferred to another corporation as a result of an amalgamation or merger or a winding-up of a subsidiary into its parent corporation.
Where a corporation's OSBSTI creates or increases a non-capital loss which is then applied to reduce the income of other taxation years, the amount of the non-capital loss may be subject to a reduction. The Ministry may apply the reduction where the Ontario allocation factor for the taxation year to which the loss is being applied exceeds 120 per cent of the Ontario allocation factor for the taxation year in which the loss was incurred. This reduction prevents a corporation from applying grossed-up losses in a low allocation year to unduly reduce income in a high allocation year.