Tax and Fiscal Environment

It is critical that the industry operate in a competitive tax and fiscal environment, in order to successfully compete for investment capital, and to maximize the economic benefits provided by industry to all Canadians.

In order to ensure that industry remains competitive, CAPP continuously anticipates and responds to government priorities and stakeholder initiatives.

Federal

Revenue transparency

In 2014, Canadian Prime Minister Stephen Harper made a commitment to Revenue Transparency Reporting at the annual G-8 conference. The Extractive Sector Transparency Measures Act received royal assent in December 2014, with most reporting entities filing their first report in 2016.

Under the legislation Canadian extractive companies are required to publicly report annual payments over $100,000 made to all levels of government, both international and domestic. In 2017, companies will be required to report on payments to Indigenous entities for the first time. We continue to work with Natural Resources Canada federal government toward developing a framework that achieves its revenue transparency objectives while recognizing the realities of the upstream oil and natural gas sector and minimizing administrative burden for extractive companies and the government.

LNG industry capital cost allowance

As part of its 2015 federal government budget submission and advocacy efforts, CAPP recommended that the federal government change the tax treatment for LNG liquefaction facilities from Class 47 (8 per cent declining balance) to Class 43 (30 per cent declining balance) tax depreciation rate. This position was taken in order to help address inherent Canadian competitive disadvantages relative to competitors such as the United States and Australia

In 2015, the federal government announced changes to the tax treatment of LNG facilities. For capital assets acquired after February 19th 2015 and before 2025, equipment and structures used for natural gas liquefaction will be eligible for an accelerated capital cost allowance (CCA) rate of up to 30 per cent (up from 8 per cent). Non-residential buildings at LNG facilities will be eligible for a CCA rate up to 10 per cent (up from 6 per cent). The lifetime taxes paid by LNG projects will remain the same regardless of the depreciation policy applied, while the federal government estimates that this change will reduce federal corporate income tax revenues by less than $50 million between 2015-16 and 2019-20.

Since this change in policy has been announced, additional competitiveness concerns have emerged with respect to LNG projects. CAPP continues to work with federal and provincial governments on measures to ensure the BC LNG industry is economically competitive with other jurisdictions.

Subsidies

CAPP agrees that government support of a particular industry or company via direct spending from the public purse and/or credit support, should be deemed a subsidy.

However, it is erroneous and misleading to deem measures of the federal tax framework that seek to enable economic activity and maintain the effective neutrality of the tax system, a subsidy.

In Canada, all businesses can deduct certain expenses and the oil and natural gas industry is no different. Tax measures of the oil and natural gas industry are not subsidies. These measures are inserted to ensure the neutrality of the tax system between sectors that differ in their capital intensity, revenue stream generation, and production/life cycles thereby removing the tax bias against them.

Click here to learn more about subsidies.

Alberta

Scientific research and experimental development

The federal government provides tax incentives to encourage Canadian companies of all sizes and in all sectors to conduct scientific research and experimental development (SR&ED). These tax incentives consist of three components:

  • An income tax deduction
  • An investment tax credit
  • A tax credit refund (in certain circumstances)

Tax incentives modify the after-tax cost of SR&ED investment, thereby lowering the company's initial costs and making SR&ED activities more attractive.

Similar to the federal program, the province of Alberta employs its own SR&ED program. Alberta's Scientific Research and Experimental Development Tax Credit program that provides a refundable tax credit to corporations for SR&ED expenditures incurred in Alberta by the corporations. Many provinces have their provincial programs administered by the Canadian Revenue Agency (CRA); however, Alberta remains one of the only jurisdictions to have its program administered by a provincial department of finance.

Due to the importance of the SR&ED program to the upstream oil and natural gas industry, as part of our 2015 pre-budget submission to the government of Alberta, CAPP has advocated that the government:

  • Remove the annual SR&ED expenditure limit in Alberta, similar to the approach in British Columbia
  • Allow corporate partners of a partnership to claim their respective share of the Alberta SR&ED tax credits
  • Conduct a review of the Alberta SR&ED program as it pertains to competitiveness with other provincial R&D programs, the economic and productivity benefits of the program, and its administrative efficiency

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