Oil Sands Truth: Shut Down the Tar Sands

Ottawa to phase out tax break for tarsands producers

Ottawa to phase out tax break for tarsands producers


Globe and Mail Update

OTTAWA — Finance Minister Jim Flaherty moved Monday to end a much-criticized tax break for oil sands producers, but softened the blow to the industry by providing a long lead time for the changes.

In his budget speech, the Finance Minister announced the government will phase out the accelerated capital cost allowance which allows oil sands producers to quickly write off the cost of their investment for income tax purposes.

The tax break was introduced by the Liberal government in 1996, when oil prices were low, in an effort to stimulate investment in the vast tar sands of northeastern Alberta. But with the crude price now hovering around $60 (U.S.), the Conservative government decided the tax break was no longer necessary.

Instead, it will be phasing in an accelerated capital cost allowance to promote investments in greener technologies, including so-called carbon capture and storage projects that would capture the greenhouse gas emissions from projects like the oil sands, and then bury those gases underground.

To soften the blow to the oil industry, Mr. Flaherty said that any major project that commenced construction prior to budget day will be grandfathered, and the companies' capital spending will still qualify for accelerated write-offs.

For the several multi-billion dollar projects that have been approved but construction has not yet started, companies will be eligible for accelerated write-offs until 2010, and then the rate will be reduced to the normal capital cost allowance by 2015.

Finance officials estimated that the tax break could cost Ottawa some $300-million a year, depending on construction activity in the oil sands. The change announced Monday will not boost federal revenues until after 2010, at the earliest.

At the same time, the minister announced Ottawa will spend $60-million over the next two years to create a Major Projects Management Office, in order to streamline the regulatory approval process for major resources projects.

The oil industry and the government of Alberta had urged the Conservative government not to touch the accelerated capital cost allowance, claiming the oil sands projects are under pressure from rising costs and promised environmental regulations.

But John Bennett, executive director of the Climate Action network, slammed the Conservative strategy on the oil sands tax break as “devious.”

“They are making it look like they are doing something when they aren't doing much,” Mr. Bennett said. With the long phase-in period, “they are letting all the horses out, and then they're going to close the corral.”

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