One of the most exciting opportunities in British Columbia is the development of our LNG export industry. The BC government is committed to making this a reality. It has been estimated that the LNG industry could add as much as $1 trillion in cumulative gross domestic product before 2050. Already a number of companies have obtained federal export licenses and more applications are in process.
One of the outstanding questions is how LNG will be taxed. Preliminary details of the LNG tax were finally released in the British Columbia budget tabled on February 18, 2014.
The government’s proposal is for a two-tier LNG income tax, as follows:
- A tier one tax of 1.5% on an operator’s net proceeds from liquefaction of natural gas at LNG facilities in British Columbia; and
- A tier two tax of up to 7% of the operator’s net proceeds after taking a deduction for capital investment.
The tier one tax would only be imposed once commercial production begins. The tier two tax would apply after the operator’s capital investment account has been recovered from LNG income. For this purpose, the capital investment account will be based on the costs of constructing the LNG facility, including the gas purification and liquefaction systems, control room, warehousing, and related infrastructure facilities.
The LNG tax will only apply to income from the sale of liquefied natural gas, rent and fees for the use of an LNG facility and fees for processing natural gas at an LNG facility. It will apply to all LNG facilities in British Columbia, regardless of whether the LNG is exported or used domestically.
The final rate of the tier two tax has not been determined, and the BC government is continuing to consider details of the proposed tax with a view to ensuring that BC will be competitive in this industry. Legislation is not expected until the fall of 2014.