Natural Gas Tax Credit
The natural gas tax credit refunds a portion of the B.C. corporate income tax paid by qualifying corporations.
The credit is available to qualifying corporations that own natural gas immediately after the natural gas has passed through a liquefied natural gas (LNG) facility inlet meter for a major LNG facility during the tax year.
Offered by Ministry of Finance
Amount
Up to 3% of the cost of natural gas notionally acquired at an LNG facility inlet meter for a major LNG facility for the tax year, plus unused credit carried forward. The claim is capped at the least of that amount, the B.C. corporate income tax payable after other B.C. credits, or the amount that reduces B.C. corporate income tax to what a 9% general rate would give. In effect this is up to 3% of B.C. taxable income subject to the general rate.
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Who can apply
The credit is available to qualifying corporations that own natural gas immediately after the natural gas has passed through a liquefied natural gas (LNG) facility inlet meter for a major LNG facility during the tax year.
Only qualifying corporations are eligible to claim the natural gas tax credit.
A qualifying corporation is a corporation:
- That has a permanent establishment in B.C. during the tax year
- Whose principal business in B.C. during the tax year consists of one or more of the following:
- The exploration for or development of petroleum or natural gas
- The production, gathering, processing, refining, marketing, storage or disposal of petroleum, natural gas or LNG
- The construction, use, or operation of a major LNG facility
- The liquefaction of natural gas
- A prescribed activity
To claim the credit, you may be asked to prove that you are a qualifying corporation.
About the funding
The natural gas tax credit refunds a portion of the B.C. corporate income tax paid by qualifying corporations.
The maximum credit you can claim in a tax year is the least of:
- The qualifying corporation's natural gas tax credit, calculated at 3% of the cost of natural gas notionally acquired at an LNG facility inlet meter for a major LNG facility for the tax year plus any unused natural gas tax credit carried forward from a previous year
- The qualifying corporation’s B.C. corporate income tax payable after all other B.C. income tax credits have been deducted, or
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- The amount used to reduce the qualifying corporation’s B.C. corporate income tax to the amount that would be payable if the B.C. general corporate income tax rate was 9%
Any unused natural gas tax credit amount can be carried forward and used in subsequent tax years, if you continue to be a qualifying corporation.
If there is an amalgamation or wind up of a subsidiary, the qualifying corporation may be able to use the unused natural gas tax credit carried forward from the predecessors or the subsidiary.
The amount of credit that a corporation can claim in a tax year is limited by the annual credit limit.
The annual credit limit allows a corporation to reduce the effective B.C. corporate income tax rate to a minimum of 9% from the general rate of 12%. This means that a corporation may claim a natural gas tax credit of up to 3% of their B.C. taxable income that is subject to the general rate.
The annual credit limit is automatically determined on your application. If the general B.C. corporate income tax rate changes, the application will prorate the annual credit limit based on the dates of your tax year.
A qualifying corporation’s eligible cost of natural gas notionally acquired for a tax year is used to determine the annual natural gas tax credit amount they’ll receive for that tax year.
The notional cost of natural gas notionally acquired in a month by a qualifying corporation is determined by the formula:
Energy content Ă— Fuel and losses adjustment Ă— Reference price + Transportation cost
Allowable transportation costs incurred by a qualifying corporation may be used to calculate the cost of notionally acquired natural gas delivered to a major LNG facility inlet meter.
Allowable natural gas transportation costs
Allowable transportation costs include costs incurred by the qualifying corporation for the delivery of natural gas at or downstream of the feedstock pipeline inlet meter to the point where the natural gas is delivered to the LNG facility inlet meter. (Figure 1)
Transportation costs paid to transport natural gas in excess of the volume of the notionally acquired natural gas at the LNG facility inlet meter must be adjusted to ensure that the transportation cost claimed is only in respect of the volume measured at the LNG facility inlet meter.
Types of natural gas transportation costs
Qualified corporations may enter into different types of natural gas transportation arrangements. Allowable transportation costs may include one or more of the following:
Firm service demand charge – This arrangement provides the shipper with a certain capacity to ship gas through the feedstock pipeline. Under this type of arrangement, the shipper pays for the entire contracted capacity, regardless of whether the capacity is used. The entire demand charge of the firm service is considered an allowable transportation cost unless the corporation has recovered any portion of this cost from another party or a portion relates to future capacity. Recovered transportation costs reduce the total amount of transportation cost.
Interruptible service toll – This arrangement provides the shipper with capacity on a best-efforts basis. Under this type of arrangement, the shipper pays a toll only for the volume of natural gas shipped on the pipeline.
Authorized over-run service charges – This cost is incurred when volumes are shipped in excess of contracted firm service capacity.
Delivery – Certain pipelines charge shippers at the point where natural gas is removed from the pipeline or at the delivery meter.
Carbon tax and motor fuel tax – Carbon tax and motor fuel tax paid in relation to natural gas consumed along the feedstock pipeline.
Pipeline compressor fuel charge – Allowable only where fuel is not provided in kind.
Other surcharges – If surcharge is required to transport natural gas through a feedstock pipeline (e.g., abandonment surcharge).
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