On October 21, 2014, the British Columbia Government tabled Bill 6, the Liquefied Natural Gas Income Tax Act.  The Bill will be considered at the Legislature’s next sitting.

Key highlights of the proposed tax regime are as follows:

  • the tax will apply to the net income earned from liquefaction activities at liquefied natural gas (LNG) facilities located in British Columbia;
  • a tax rate of 3.5% will apply on the income, beginning January 1, 2017;
  • a tax rate of 1.5% will apply during the period when net operating losses and capital investment are being deducted (taxes paid in this period will be creditable against the future income when the 3.5% tax rate is in effect);
  • a tax rate of 5% will apply beginning in 2037; and
  • a new corporate income tax credit will be available to any LNG income taxpayer with a permanent establishment in British Columbia, which will be calculated based on the natural gas acquired for an LNG facility.

As compared to the original announcement made by the British Columbia Government in February 2014, the most significant changes announced today concern a reduction in the upper end range of the proposed tax rate (i.e. originally announced to be up to 7%).  The additional corporate income tax credit based on natural gas acquired for an LNG facility is also a new proposal.  These changes have been justified based on declines in world market LNG pricing levels, anticipated competition for LNG supply and also higher than expected construction costs for British Columbia LNG developments.  Industry reaction to Bill 6 remains unclear but will no doubt be seen in the timing of final investment decisions.  There are now 18 LNG project proposals in British Columbia.