B.C. introduces LNG Income Tax

A comprehensive income tax applicable to the LNG industry was introduced by Finance Minister Michael de Jong.

Bill 6 or the Liquefied Natural Gas Income Tax Act introduced in the B.C. legislature gives proponents the certainty they need to make investment decisions while ensuring British Columbians receive the revenues from this new industry.

The LNG Income Tax framework reflects government’s announcement in February 2014 and government’s ongoing consultation with industry.

“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,” stands in the government’s statement.

Currently, there are 18 potential LNG projects in British Columbia that have invested more than $7 billion to acquire natural gas assets in British Columbia. An additional $2 billion has been invested in preparation for construction of B.C. LNG infrastructure.

The LNG Income Tax applies to the net income from liquefaction activities at LNG facilities in B.C. The tax rate on net income will be 3.5%, effective for taxation years beginning on or after Jan. 1, 2017. During the period when net operating losses and the capital investment are being deducted, a tax rate of 1.5% will apply and is creditable against the 3.5% tax. In 2037, the LNG Income Tax rate will increase to 5%.

To encourage investment, the tax framework will see a new B.C. Corporate Income Tax Credit available to any LNG Income Taxpayer that has a permanent establishment in B.C. This credit will be calculated based on the 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.

Even though, the tax rate presented in February was to be up to 7%, market changes have caused the government to halve the tax rate to 3.5%.

“Government has undertaken extensive discussions with LNG industry proponents over the past two years considering their input to better understand business models, cost structures and competitiveness issues in creating this new tax,” reveals the statement.

Image: gov.bc.ca