ARCHIVED -  Telecom Public Notice CRTC 1992-35

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Telecom Public Notice

Ottawa, 9 June 1992
Telecom Public Notice CRTC 92-35
Prior to 4 October 1990, telephone service in the province of Alberta was provided by the Alberta Government Telephones Commission (the AGT Commission). The AGT Commission was a Crown corporation and, as such, was exempt from federal and provincial income taxes. As a result, it never claimed capital cost allowance (CCA). For accounting purposes, however, it did calculate an annual depreciation expense, which it included in the calculation of its revenue requirement.
On 24 July 1990, the Legislative Assembly of the province of Alberta passed the Alberta Government Telephones Reorganization Act, providing for the restructuring, on 4 October 1990, of the AGT Commission. Telus Corporation (Telus) was formed as a holding company to facilitate the privatization of the provincial Crown agency. Telephone operations were transferred to AGT Limited (AGT), a subsidiary of Telus, which then came under the Commission's jurisdiction.
In preparation for the reorganization and privatization of the AGT Commission, the Government of Alberta received an Advance Income Tax Ruling from Revenue Canada. This ruling effectively permits Telus and its subsidiaries (including AGT) to claim as Undepreciated Capital Cost for income tax purposes the original cost of the assets that were transferred from the AGT Commission. In response to a Commission interrogatory in the proceeding leading to AGT Limited - Revenue Requirement for 1992, Telecom Decision CRTC 92-9, 26 May 1992 (Decision 92-9), AGT stated that its depreciable assets had a tax basis of approximately $3.8 billion on 4 October 1990, an amount substantially exceeding the carrying (net book) value of the assets (approximately $2.2 billion) at that time.
The additional portion of CCA available from the excess of the original cost over the net book value of the assets at the time of privatization ($1.6 billion) creates additional tax deductions that have reduced AGT's income tax expense to date and will also reduce its future income tax expense. During the proceeding leading to Decision 92-9, AGT stated that, in order to present a conservative view of its revenue requirement, it prepared its 1992 forecasts on the basis that the benefits arising from these additional tax deductions should go to subscribers. However, AGT submitted that the issue of shareholder versus subscriber benefit for future years should be addressed in a separate proceeding.
In a letter to the Commission dated 24 January 1992, AGT reiterated its preference that tax related matters be deferred to a separate proceeding. AGT submitted, among other things, that the taxation issues related to privatization were too complex to handle properly in the revenue requirement proceeding. The company also stated that it had not fully developed its position on the tax related issues, in large part because they would not affect the calculation of its 1992 revenue requirement.
In a letter dated 30 January 1992, the Commission noted AGT's statements that (1) it was not prepared to deal with the tax issues in the revenue requirement proceeding; and (2) the tax issues would not affect its revenue requirement for 1992. The Commission determined that it would deal with issues related to AGT's prospective tax position in a separate proceeding.
In accordance with its announced intention, the Commission initiates a public proceeding to consider the issues related to AGT's prospective tax position, including the following:
(1) the determination of the amount of the additional tax deductions associated with the Advance Income Tax Ruling;
(2) the availability of further tax deductions not associated with the Advance Income Tax Ruling;
(3) the calculation of annual tax deductions available;
(4) the allocation of benefits between shareholders and subscribers of additional tax benefits;
(5) the method to account for income tax expense (tax allocation or taxes payable basis);
(6) the method to account for deferred tax liability (deferral or liability method) if the tax allocation basis is used to account for income tax expense; and
(7) any impact on the company's 1993 revenue requirement.
1. The mailing addresses to be used in connection with this proceeding are:
Mr. Allan J. Darling
Secretary General
Ottawa, Ontario
K1A 0N2
Fax: (819) 953-0795
Mr. James H. Pratt
Vice President Regulatory Affairs
AGT Limited
Floor 32-G, 10020 - 100 Street
Edmonton, Alberta
T5J 0N5
Fax: (403) 493-5645
2. Persons wishing to participate in this proceeding (interveners) must file a notice of intention to participate with the Commission, serving a copy on AGT, by 30 June 1992. Interveners should indicate whether they wish to file evidence during the proceeding. The Commission will issue a complete list of parties and their mailing addresses.
3. The Commission has, by letter dated 9 June 1992, addressed interrogatories to AGT. Responses to these interrogatories, as well as AGT's evidence addressing the issues raised above or any other tax related issues, must be filed with the Commission and served on interveners by 7 July 1992.
4. Requests by interveners for public disclosure of information for which confidentiality has been claimed, setting out the reasons for disclosure, must be filed with the Commission and served on AGT by 14 July 1992.
5. AGT's written responses to requests for public disclosure of information must be filed with the Commission and served on the intervener making the request by 21 July 1992.
6. The Commission will issue directions as to further procedure once a decision has been made regarding any requests for public disclosure.
7. Where a document is to be filed or served by a specific date, the document must be actually received, not merely mailed, by that date.
Allan J. Darling
Secretary General

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