New Tax Incentive for the LNG Industry
The federal government announced on February 19, 2015 that accelerated capital cost allowance (CCA) treatment would apply to certain property used in liquefaction facilities for the domestic and export liquefied natural gas (LNG) markets and for LNG storage. The new measure signals the federal government’s support for Canada’s emerging LNG industry, and follows a concerted lobbying effort by LNG project proponents and industry associations.
A copy of the federal Department of Finance’s press release announcing the change can be accessed here; a more detailed discussion by the Department of Finance can be obtained here; and a copy of the related draft regulations can be found here.
LNG capital assets are generally included in Class 47, with a CCA rate of 8%. Under the new measures, an additional deduction will result in a CCA rate of 30% for qualifying assets related to natural gas liquefaction that were acquired after February 19, 2015 and before 2025. Non-residential buildings that are part of a facility for liquefaction of natural gas, and that are acquired between these dates, will enjoy a 10% CCA rate instead of the current 6% CCA rate.
LNG project participants will now enjoy increased deductions for many kinds of equipment used in connection with liquefaction of natural gas, including controls, cooling equipment, compressors, pumps, storage tanks and pipelines used exclusively to transport natural gas within a liquefaction facility or to move LNG (as opposed to pipelines used to move natural gas from the gas extraction sites to LNG facilities). However, the additional deductions will not apply to: (i) equipment used exclusively for regasification; (ii) property acquired to produce oxygen or nitrogen; (iii) a breakwater, dock, jetty, wharf or similar structure; (iv) electrical generating equipment; or (v) the acquisition of used equipment or buildings.
The additional allowances for a liquefaction facility can be claimed only against income attributable to liquefaction of natural gas at that facility.
While the measures are to apply from February 19, 2015, interested parties are invited to provide comments to the Department of Finance by March 27, 2015.
As these new measures will allow companies that invest in new LNG facilities to recover their investment more quickly, the government hopes that the measures will jump-start some of the LNG projects that are currently in the works.
capital cost allowance (CCA) liquefied natural gas (LNG)