REPORTING · 21st October 2014
Bill 6, the Liquefied Natural Gas Income Tax Act, was introduced in the BC Legislature and announced it today: October 21st.
“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 from this new industry,” said Finance Minister Michael de Jong.
A BC Liberal press release explains there are18 potential LNG projects in British Columbia and they have invested $7 billion to acquire natural gas and $2 billion in infrastructure.
“For British Columbians, the LNG Income Tax will help ensure that they receive a fair return on a publicly owned, non-renewable, natural resource,” says the release.
The tax rate on LNG income will be 3.5% for taxation years beginning on or after January 1st, 2017. However, during a period of net operating losses and capital investment, a tax rate of 1.5% which is creditable against the 3.5% will apply.
“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,” reads the press release.
The press release also explains to encourage investment, there will also be a B.C. Corporate Income Tax credit which is available to LNG Income Taxpayers with a permanent establishment in BC and based on 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.,” says the release.
The release goes on to say the BC Government reviewed the framework in February 2014 and determined it is competitive with the United States and Australia. LNG will also benefit from B.C.’s skilled workforce, geographical location close to the markets, and large reserves of natural gas.
However, the release also says: “In February 2014, the LNG Income Tax rate was announced to be up to 7%, based on 2013 economic assumptions and conditions. At that time, B.C. undertook to introduce the tax in October 2014. The new, reduced rate of 3.5% is the result of changes to the market since. 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.
Government has undertaken extensive discussions with LNG industry proponents over the past two years. Government has considered their input to better understand business models, cost structures and competitiveness issues in creating this new tax.”
This bill is still subject to approval by the Legislature.