The District of Kitimat Council Monday, Dec. 17, 2012, endorsed a campaign by the Canadian Association of Petroleum Producers asking for tax breaks of Liquified Natural Gas liquefaction facilities in the 2013 federal budget.
A report to the Kitimat council said that on November 23, the mayors of Kitimat and Prince Rupert, sites for proposed LNG terminals, and the mayors of Dawson Creek, Fort St. John and Fort Nelson, where the shale gas deposits are found, held a video conference call with CAPP to discuss the new tax proposals.
CAPP is asking that the federal government to change the classification of LNG liquefaction facilities under tax law so that they are equivalent of manufacturing facilities. Currently LNG liquefaction are can claim depreciation at eight per cent, while manufacturing and processing facilities can claim depreciation at 30 per cent.
The report to Kitimat council from chief administrative officer, Ron Poole, said “This change will increase Canada’s competitiveness for global market access and support significant economic growth.”
A report written by the Canadian Association of Petroleum Producers attached for council argues that by turning natural gas into its cold, liquefaction form, it is actually being manufactured. CAPP quotes tax law as saying:
manufacture of goods normally involves creation of something…processing of goods usually refers to a technique of preparation, handling or other activity designed to effect a physical or change in an article or substance.
CAPP goes on to argue:
The chemical composition of the natural gas is changed through treatment process and physical change occurs through the liquefaction process. The treatment processes include removing impurities such as acid gases and mercury, as well as dehydration and the removal of heavier hydrocarbons in order to facilitate the manufacturing process and to meet end market specifications.
CAPP goes on to argue that the current taxation levels put Canadian LNG facilities at a competitive disadvantage with potential competitors in the United States and Australia. It says that under the current tax treatment in Canada, an LNG liquefaction facility would take 27 years to depreciate. In the United States and Australia, LNG facilities are depreciated over 10 years. Changing to the Canadian manufacturing level would depreciate over seven years.
CAPP notes that there are currently six liquefaction plants under consideration by their respective corporate boards. It says that the tax change could hasten a positive decision by those companies, ensuring the projects go ahead because “Canada is a natural fit with its open-for-business attitude, stable political environment and commitment to responsible development.”