An artistic rendering of Pacific NorthWest LNG’s proposals for a liquefied natural gas dock, suspension bridge and export terminal on Lelu Island, near Prince Rupert in northwestern British Columbia. Source: Pacific NorthWest LNG
All other things being equal, it's good to encourage British Columbia's nascent liquefied natural gas industry – but then, very few things are equal. And simplicity and neutrality are decidedly good things in tax policy.
Last week, Prime Minister Stephen Harper announced that there will be an accelerated capital-cost-allowance rate for LNG, enabling LNG enterprises to write off costs more quickly. It might not be entirely coincidental that the Malaysian oil-and-gas company Petronas is expressing renewed interest in B.C.'s LNG, after a few months in which it seemed to be cooling off.
Back in September, the B.C. LNG Developers Alliance wrote to the House of Commons finance committee proposing that LNG exporting should be reclassified from "distribution" to "manufacturing" for CCA purposes – entitling the industry to an effectively lower tax burden.
Canadian tax policy should not be modelled on Humpty Dumpty's pronouncement to Alice, in Through the Looking Glass: "When I use a word, it means just what I choose it to mean. ... The question is, which is to be master – that's all."
Mr. Harper has by no means gone all the way with Humpty Dumpty. Instead, his proposal is to raise the CCA rate for some kinds of "equipment" to 30 per cent a year from 8 per cent, and to raise the rate for buildings for LNG to 10 per cent from 6 per cent – the same rate as for manufacturing facilities.
The general principle for CCA is that the capital costs of a property are written off during the expected life of properties of a particular type. Any acceleration of writeoffs is an incentive.
One can sympathize with Mr. Harper's election-year goal of wanting to be seen to be doing something in support of B.C.'s nascent industry. But by tinkering with the taxes of a targeted constituency, he's once again introducing more complexity and favouritism into a tax code that badly needs the opposite.
In a release accompanying his LNG announcement, Mr. Harper spoke about how his government is cutting red tape. But an additional element of complexity in the CCA system surely means more red tape, not less.