In its last budget before a fall election, the Canadian federal government made a number of new spending commitments in energy and resources area, and also made significant changes to the tax and financing regime for liquefied natural gas (LNG) facilities proposed for the British Columbia coast.
There were two significant changes with respect to LNG:
1. Accelerated Capital Cost Allowances for LNG
The government confirmed in the budget that accelerated capital cost allowances will be provided for LNG facilities.
The announced rates are 30% depreciation for equipment used in natural gas liquefaction (including controls, cooling equipment, compressors, pumps, storage tanks, and ancillary equipment, pipelines used exclusively to transport liquefied natural gas from the facility, and related structures), and 10% for buildings at a facility that liquefies natural gas.
Depreciation at the accelerated rates would only be deductible against income attributable to natural gas liquefied at the facility, and not against other income of the taxpayer. Conventional depreciation rules (such as the half-year rule and depreciation on a declining-balance basis) would apply.
The budget proposal fulfills a promise that the Prime Minister made during a speech in British Columbia in February, and is expected to result in tax savings of $45 million to LNG proponents by 2020. For further information, see the Prime Minister’s Office’s backgrounder and the Department of Finance’s draft regulations.
2. National Energy Board Will Be Able to Issue Longer Terms for Natural Gas Export Licenses
The budget also provides for the amendment of the National Energy Board Act to permit the NEB to issue natural gas export licences for 40 years instead of the current 20 year term.
This change, which will enable LNG developers to enter into longer term firm export sales contracts, will significantly increase the certainty associated with Canadian LNG projects and improve the financeability of those projects.
Also note that while this is not a budgetary matter, the announcement of an amendment of this nature is consistent with the government's practice of including a wide variety of non-budget matters in omnibus budget bills.
As well, the budget also provides additional funding in the energy and resource areas. The new funding includes:
- $30.8 million over 5 years to enhance Arctic marine transportation safety, and to strengthen marine incident prevention, preparedness and response in all waters.
- $22 million over 5 years to support mining industry through the targeted geoscience initiative.
- $23 million over 5 years to Natural Resources Canada to stimulate technological innovation related to commercial production of rare earths and chromite.
- $34 million over 5 years for consultation for projects undergoing Canadian Environmental Assessment Act assessments.
- $80 million over 5 years to the National Energy Board for safety and environmental protection and greater engagement.
As well, the budget proposes to extend the current 15% Mineral Exploration Tax Credit for flow-through share interest for an additional year, until March 31, 2016.