In a previous blog entry, we provided comprehensive commentary on the then-recently tabled Liquefied Natural Gas Income Tax Act (the “Act”), the foundational piece of legislation in the B.C. Government’s proposed liquefied natural gas (“LNG”) taxation regime.
On November 27, 2014, the Act received royal assent and the Province has since been in the process of crafting associated regulations and amendments. The first of these, Bill 26 – Liquefied Natural Gas Income Tax Amendment Act, 2015 (the “Proposed Amendment”), was released on March 25, 2015, and proposes a number of amendments to the Act, including many relating to the Province’s prior commitment to set out enforcement and administration mechanisms for the Act by spring 2015, as well as a welcome change to the new Natural Gas Tax Credit.
The Proposed Amendment also contains a number of clarifications to the key defined terms in the Act – namely, “capital investment property”, “feedstock pipeline”, “feedstock spur pipeline”, “liquefaction activities”, “LNG facility inlet meter”, “LNG facility”, and “LNG plant”.
McCarthy Tétrault’s LNG Team would be happy to discuss the Proposed Amendment with you and how it may impact you in making LNG business and investment decisions in B.C.
Welcome change to the new Natural Gas Tax Credit
As noted in our previous blog entry, in order to incentivize corporations to maintain a permanent establishment in B.C. with a view to attracting new corporate income tax revenue to B.C., a new Natural Gas Tax Credit has been created to allow qualifying corporations to offset regular corporate income taxes arising under the B.C. Income Tax Act. The Province initially contemplated that this would be a credit equal to 0.5% of the corporation’s eligible cost of natural gas for the taxation year, as determined under the Act.
In an effort to enable greater flexibility and responsiveness in the face of global LNG pricing fluctuations, and to ensure the long-term competitiveness of the Province’s LNG tax regime, the Proposed Amendment will allow the Province to increase the 0.5% rate by regulation. It should be noted, however, that the credits may still only be used insofar as they reduce the taxpayer’s B.C. corporate income tax to an amount equivalent to the amount that would be payable if the B.C. general corporate income tax rate were 8%. As the current general corporate income tax rate is 11%, the credits therefore allow for a maximum effective reduction of 3%, and the Proposed Amendment does not currently contemplate an adjustment to this cap.
The Province anticipates that regulations setting the Natural Gas Tax Credit rate will be finalized later this year.
In addition to the above-noted change to the Natural Gas Tax Credit, the Proposed Amendment contains a number of other proposed technical and substantive changes to the Act, including:
as mentioned above, a number of clarifications to the key defined terms used in the Act; administrative and enforcement provisions relating to registration and security, returns and assessments, penalties, offences, appeals, and anti-avoidance rules; provisions regarding debt forgiveness, bankruptcy, the treatment of trusts with exempt beneficiaries, and transitional rules for partnerships during the first taxation years; and clarifications to the transfer pricing rules.