The LNG Income Tax, which applies to the net income from LNG facilities in B.C., is set at 3.5 per cent and will become effective for taxation years beginning on or after January 2, 2017.
During the period in which net operating losses and the capital investment are being deducted, a tax rate of 1.5 per cent will apply.
“Developing a tax framework for a promising new industry has been a complex process,” De Jong says in a written statement. “We believe this overall framework strikes the right balance between a competitive economic environment and a fair return to British Columbians.”
In February 2014, the LNG Income Tax rate was announced to be up to 7 per cent, which according to the province, was based on 2013 economic assumptions and condition.
“At that time, B.C. undertook to introduce the tax in October 2014,” the Ministry of Finance writes. “The new, reduced rate of 3.5 per cent 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.”
In 2037, the LNG Income Tax rate will be increased to 5 per cent, which the province goes on to say “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.”
The province adds, “It also ensures guaranteed revenue flow for the next generation of British Columbians.”
In an effort to encourage investment, the ministry says they’re also introducing a new Corporate Income Tax Credit, which will be available to any taxpayer that has a permanent LNG establishment in B.C.
The corporate credit will have the effect of reducing the provincial corporate income tax rate from 11 per cent to as low as 8 per cent for said company, according to the province.
Minister De Jong says this “will help attract new corporate income tax revenue to B.C.”
The province says their tax framework was reviewed in February of 2014, and goes on to say it’s competitive with competing jurisdiction, including the United States and Australia.
“B.C.’s advantage is more than just a competitive tax rate – proponents will benefit from B.C.’s skilled workforce, geographical proximity to markets and large natural gas reserves, as well as the cool, northern climate.”
“With this bill introduced in the legislature, LNG proponents will have a clear understanding of the tax framework and can begin to make final investment decisions.”
There are currently 18 proposed LNG projects in B.C. that have invested more than $7 billion in their effort to acquire natural gas assets within the province; with an additional $2 billion invested in preparation of LNG 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,” the ministry writes.
The provincial government concludes by saying they’ve undertaken “extensive discussion with LNG industry proponents over the past two years” before implementing the new tax, adding their extensive consideration to better understand business models, cost structures and competitiveness issues in creating an LNG tax.
“This marks an important next step in attracting an LNG industry in British Columbia,” Premier Christy Clark writes. “Our competitive tax framework provides certainty and stability for proponents, long-term revenues for British Columbians, and encourages high-paying jobs that will come and be generated by the establishment of this new industry.”
The Liquefied Natural Gas Income Tax Act is subject to the approval of the legislature.