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Published on February 20, 2015 with No Comments


Prime Minister Stephen Harper today announced the Government’s intent to support the creation of new and well-paying jobs in the emerging liquefied natural gas (LNG) industry. He was joined by James Moore, Minister of Industry, Alice Wong, Minister of State (Seniors), Wai Young, Member of Parliament for Vancouver South, and Bob Zimmer, Member of Parliament for Prince George–Peace River.

In order to ensure that Canadian natural gas can reach new and growing international markets, and make it accessible for new domestic uses, the Government intends to establish a capital cost allowance rate of 30 per cent for equipment used in natural gas liquefaction and 10 per cent for buildings at a facility that liquefies natural gas. This tax relief will be available for capital assets acquired after February 19, 2015, and before 2025.

Canada has an important opportunity to build on its record of developing natural resources in a responsible manner while securing long-term prosperity for Canadian families. Canada benefits from large reserves of natural gas but has limited capacity to supply it to emerging international and domestic markets where demand is growing.

This measure will allow companies investing in new facilities that liquefy natural gas to create jobs and economic growth, while recovering their investment more quickly. It will also encourage investment in facilities that liquefy natural gas to supply emerging international and domestic markets.

Quick Facts

• The supply of LNG to both domestic and international markets represents an important new market for Canadian natural gas production.
• The International Energy Agency expects global LNG trade to rise by 40 per cent between 2013 and 2019.
• Over the International Energy Agency’s projection period, growth in natural gas demand in Asia is expected to represent half of the world’s incremental needs.
• In domestic markets, LNG is increasingly used in remote power generation and the high-horsepower engines used in trucking, shipping, rail, drilling rigs and pressure pumping services.
• LNG has the potential to significantly reduce greenhouse gas emissions internationally when it replaces coal for power generation and replaces diesel in many domestic applications.


“Our Government is committed to providing the right conditions so that industries and businesses can succeed and compete in the global economy, by lowering taxes, cutting red tape and encouraging entrepreneurship. Today’s announcement builds on our low tax plan for jobs and growth, strengthening the already strong case for business investment in Canada.” – Prime Minister Stephen Harper

“Through our ambitious trade agenda, we are opening new markets for Canadian businesses and developing the infrastructure to transport Canadian products to new markets, which is essential for Canada’s future prosperity and security.” – Prime Minister Stephen Harper



The extraction, sale and use of natural gas is an important part of Canada’s economy. Natural gas can be cooled to a liquid state (liquefied natural gas, known as LNG), thereby reducing its volume and facilitating its transportation and storage. The liquefaction of natural gas is a capital-intensive activity that requires large upfront investments.

Unlike current expenditures such as wages, the cost of capital property generally cannot be fully deducted in the year the property is acquired. A portion of the capital cost of a depreciable property is deductible as capital cost allowance (CCA) each year, with the CCA rate for each type of property set out in the Income Tax Regulations. CCA rates are typically set so that the cost of depreciable property is recognized over the useful life of the property. Accelerated CCA treatment is sometimes provided as an exception to this general practice, allowing taxpayers to more quickly recover the cost of their capital investment.

The Government proposes to provide accelerated CCA treatment for certain property acquired for use in facilities in Canada that liquefy natural gas:
• to supply LNG to international markets;
• to supply LNG to domestic markets (e.g., for use in remote power generation or the high-horsepower engines used in trucking, shipping, rail, drilling rigs, and pressure pumping services); or,
• to store LNG in periods of low demand and then regasify it in periods of high demand (so-called “peak shaving”).

Equipment and structures used for natural gas liquefaction are generally included in Class 47 (CCA rate of 8 per cent). The accelerated CCA will take the form of an additional 22 per cent allowance that will bring the CCA rate up to 30 per cent for Class 47 property used in Canada in connection with natural gas liquefaction.

Property eligible for the additional allowance in respect of Class 47 will comprise equipment that is part of a facility that liquefies natural gas, including controls, cooling equipment, compressors, pumps, storage tanks, and ancillary equipment, pipelines used exclusively to transport liquefied natural gas from the facility, and related structures. Equipment used exclusively for regasification will not be eligible for the additional allowance.

The additional allowance will not be applicable to:
• property acquired for producing oxygen or nitrogen;
• a breakwater, dock, jetty, wharf or similar structure; or,
• electrical generating equipment.

Non-residential buildings at a facility that liquefies natural gas are currently eligible for a CCA rate of 6 per cent (4 per cent under Class 1 plus an additional 2 per cent allowance for non-residential buildings). A second additional allowance will bring the CCA rate up to 10 per cent for buildings that are part of facilities that are used to liquefy natural gas.

Consistent with the current CCA rules, the additional allowances will be calculated on a declining-balance basis.

These additional allowances in respect of a facility that liquefies natural gas in Canada will be allowed to be claimed only against income of the taxpayer that is attributable to the liquefaction of natural gas at that facility. This will include income of a taxpayer from:
• selling natural gas that was liquefied by the taxpayer if the taxpayer owned the natural gas when it entered the facility;
• selling by-products from the liquefaction process; and,
• providing liquefaction services in respect of natural gas owned by a third party.

In many cases, determining the portion of such income that is attributable to a taxpayer’s LNG liquefaction activities will be relatively straightforward. For example, if a taxpayer’s sole source of revenue is from providing liquefaction services to a third party, where the natural gas is owned by the third party, all of the taxpayer’s income will be attributable to liquefaction. The same result will arise if a taxpayer is engaged only in the liquefaction of natural gas purchased from third parties at the “plant gate” and the subsequent sale of the LNG.

However, where a taxpayer is not engaged exclusively in the operation of a liquefaction facility – because, for example, it is engaged in natural gas extraction, transportation or distribution – the taxpayer’s income from a facility that liquefies natural gas will be determined as though:
• the operation of that facility were a separate business the only income of which was derived from the activities enumerated above; and,
• the cost to the taxpayer of natural gas that was owned by the taxpayer before it enters into the facility was equal to its fair market value.

The standard rules applying to CCA, such as the “half-year” and “available for use” rules, will apply in respect of the accelerated CCA. The “half-year rule” reduces the effective CCA rate to half the normal rate in the year property is acquired or becomes available. For the purpose of calculating CCA, no amount may be deducted until the property has become “available for use” by the taxpayer. In large projects, however, property can be considered to be available for use earlier than it otherwise would under the “rolling start” and the “long-term project” rules.

Property acquired after February 19, 2015 and before 2025 will be eligible for these additional allowances. However, property that was previously used, or acquired for use, before it was acquired by the taxpayer will not be eligible for the additional allowance.

It is projected that the provision of the accelerated CCA treatment will reduce federal corporate income tax revenues by less than $50 million over the 2015-16 to 2019-20 period.

Draft regulations are available on the Finance Canada website at Interested parties are invited to provide comments on the draft proposals by March 27, 2015. Please send your comments to or to:

Tax Policy Branch
Department of Finance, Canada
90 Elgin Street
Ottawa, Ontario K1A 0G5


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