As world energy demand increases, Canada is well-placed to become a key global supplier of responsibly produced oil, while driving job creation and economic growth here at home and ensuring our nation's prosperity for the future.
But Canada is falling behind. While capital investment in other countries such as the U.S. has increased, it has decreased vastly in Canada since 2014.
Competition for capital investment in the global market is fierce and if Canada wants its industry to be a major player internationally, a number of factors need to be considered.
Rising government costs, the burden of inefficient regulations, and the lack of infrastructure to move Canadian energy to growing markets are all undermining investor confidence in Canada and negatively affecting the country’s ability to attract the capital needed to create jobs and national prosperity.
Current policy and regulatory initiatives proposed by the federal and provincial governments, along with market access challenges are undermining investor confidence and negatively affecting Canada’s ability to attract capital and remain competitive. Despite its relative size to other industries within Canada, the upstream Canadian oil and natural gas industry competes for investment, labour, and capital in an increasingly globalized world.
How Improved Competitiveness Would Help Alberta
Canada's oil and natural gas industry helps support the country's economy by providing revenues to help pay for healthcare, education and infrastructure.
Tax and Fiscal Responsibility
In order for Canada’s oil and natural gas industry to successfully compete for investment capital, and to maximize the economic benefits provided by industry to all Canadians, we need to have a competitive tax and fiscal environment.
To ensure industry remains competitive, CAPP continuously anticipates and responds to federal and provincial government priorities and stakeholder initiatives.
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 companies extracting natural resources are required to publicly report annual payments over $100,000 made to all levels of government – both international and domestic. In 2017, companies also became required to report on payments to Indigenous entities.
We continue to work with Natural Resources Canada to develop a framework that achieves its revenue transparency objectives that works for our member 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 taxation for LNG liquefaction facilities from Class 47 (8% declining balance) to Class 43 (30% declining balance) tax depreciation rate. This was to help address inherent Canadian competitive disadvantages relative to competitors such as the United States and Australia.
That year, the federal government announced changes – for capital assets acquired between February 19, 2015 and 2025, equipment and structures used for natural gas liquefaction would be eligible for an accelerated capital cost allowance (CCA) rate of up to 30% (up from 8%).
Non-residential buildings at LNG facilities would be eligible for a CCA rate up to 10% (up from 6%). The lifetime taxes paid by LNG projects would remain the same regardless of the depreciation policy applied. The federal government estimated this change would 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.
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 included 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.
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 provides a refundable tax credit to corporations for SR&ED expenditures spent in Alberta by corporations.
In Alberta this program is administered by a provincial department of finance.
CAPP has advocated for some improvements to this program on behalf of its members since 2015.