British Columbia cuts LNG tax

The government of B.C. has cut the proposed LNG tax from 7% to 3.5%, ensuring fairer returns for British Columbians and certainty for the industry.

A comprehensive and competitive income tax applicable to the LNG industry gives proponents the certainty they need to make investment decisions while ensuring British Columbians receive the revenues they deserve, Finance Minister Michael de Jong said with the introduction of Bill 6, the Liquefied Natural Gas Income Tax Act.

With this new bill, LNG proponents will have a clear understanding of the tax framework and can begin to make final investment decisions. Currently, there are 18 potential LNG projects in British Columbia that have invested over CAN$ 7 billion to acquire natural gas assets in British Columbia. An additional CAN$ 2 billion has been invested in preparation for construction of B.C. LNG infrastructure.

Liquefaction tax

The LNG Income Tax applies to the net income from liquefaction activities at LNG facilities in B.C. The tax rate on net income will be 3.5%, effective for taxation years beginning on or after 1 January 2017. During the period when net operating losses and the capital investment are being deducted, a tax rate of 1.5% will apply and is creditable against the 3.5% tax.

In 2037, the LNG Income Tax rate will increase to 5%. This ensures that proponents have time to build a strong foundation in the communities in which they operate, before the full extent of the tax is applied. It also ensures guaranteed revenue flow for the next generation of British Columbians.

LNG investment

To encourage investment, the tax framework will see a new B.C. Corporate Income Tax Credit available to any LNG Income Taxpayer that has a permanent establishment in B.C. This credit will be calculated based on the natural gas acquired for an LNG facility. The credit will have the effect of reducing the provincial corporate income tax rate from 11% to as low as 8% for that company. This will help attract new corporate income tax revenue to B.C.

The Province’s tax framework was reviewed in February 2014 and is competitive with competing jurisdictions, including the US and Australia. At this time, the LNG Income Tax rate was announced to be 7%, based on 2013 economic assumptions and conditions.

The new, reduced rate of 3.5% is the result of changes to the market since February. The combination of declining LNG selling prices and increased construction costs has resulted in a lower rate that is more attractive to investors and more indicative of current market conditions.

Comments

British Columbia Premier, Christy Clark

“This marks an important next step in attracting an LNG industry in British Columbia. Our competitive tax framework provides certainty and stability for proponents, long-term revenues for British Columbians, and encourages high-paying jobs that will come and be generated by the establishment of this new industry.”

Finance Minister, Michael de Jong

“Developing a tax framework for a promising new industry has been a complex process. We believe this overall framework strikes the right balance between a competitive economic environment and a fair return to British Columbians.”

Adapted from press release by Katie Woodward

Read the article online at: https://www.lngindustry.com/liquefaction/22102014/bc-cuts-lng-tax-1639/