By Andrea Arnold

A partnership between the Village of McBride and the Community Forest would return the organization into the tax exempt category, allowing more funds to remain in the community according to Michael Martineau with KPMG, a global organization of independent services firms providing Audit, Tax and Advisory services.

At the last McBride Village Council meeting on October 22nd, Martineau with KPMG made a presentation regarding a proposed limited partnership between the Village and the McBride Community Forest Corporation.

Martineau explained that in August 2022 the federal income tax act changed and the exemption that the village previously relied on no longer exists. The old agreement with the government stated that income from revenue generated from within the boundary of the municipality was exempt.

Under the new rules, because the timber is not being sold to the province of British Columbia, that exemption no longer applies. 

“So now, in order for the MCFC’s income to be exempt from income taxes, the revenue has to be generated inside the geographical municipal boundaries, more than 90 per cent,” he said.

To get around this, many formerly tax-exempt entities are switching from being inside corporations to being inside a partnership. The partnership itself doesn’t pay tax, as it allocates income out to its partners.

Martineau told Council that the Village of McBride could be a partner to come alongside MCFC. The Village is tax-exempt so there would not be any taxes paid on the net income from logging.

Mayor Runtz asked what happens for tax returns for 2022 and 2023. Martineau said that for the 2022-2023 financial year ending August 2023, the Village of McBride paid corporate tax on the profits. 

If it stays the way it is, that will continue to be the case. If there is a year that is a loss, those funds can be used to recover some of the taxes paid in previous years.

Mayor Runtz then asked when the exemption would come into effect, and how it would affect the 2024 tax return.

“The corporation has been taxable since August 2022,” said Martineau. “If MCFC had positive net income in the period ending August 2024 then it will again pay tax due at the end of November. This will continue until 90 per cent of the income is generated from within the geographical boundaries of the municipality.”

He explained that the corporate tax rate is essentially 11 per cent on the first $500,000 and 27 per cent for anything above that amount.

Mike Monroe, MCFC Director, said this method brought forward by KPMG is a legal method to avoid taxes. He said that there are many other similar partnerships being formed all across the province. Politically, it is important to get something set up that takes the politics out of forest management, he said. This would relieve a lot of the liabilities that could come into play with the Village.

MCFC Director Terry Kuzma said the primary driver for the change is to not pay taxes and retain as much revenue as possible and keep it local. In this structure, the Village would hold 99.99 per cent of the units that would flow back on a tax-free basis.

The solution brought forward by KPMG addresses the issues of liabilities and good governance and proper forest management. This is the first step forward in a potential restructuring.

Before MCFC can move ahead in establishing a partnership, Council needs to make a decision if this is the direction that they want to take.

Councillor Bennett asked for clarification as to who paid the income tax bills since the exemption was removed. She was told the MCFC covered those expenses, but that if the money was not available, the Village would have had to step up and cover it.

Immediately following the presentation and discussion, Council made a motion and voted unanimously to direct MCFC to follow through with the next steps towards the development of a partnership.

MCFC General Manager Craig Pryor said they would come back to Council for another meeting and Kuzma thought that this request would come before the end of the year as they go through the process alongside KPMG.