Taxes And Incentives - Moving Targets

Abstract

Abstract For the fourth time in fifteen years, the oil patch is being forced to deal with a major reform of tax and incentive provisions. Following significant overhauls of the "rules of the game" in 1970, 1975, and 1980, the oil and gas industry is busy trying to sort out the latest series of changes announced in the Western Accord on March 27, 1985 and by the Province of Alberta on June 24. Tax Topics seeks to set out a general overview of these latest changes, which will clearly have an important impact on many of the ways of doing business in Canada. Introduction The Canadian oil and gas industry might be well advised to be wary of the year 1990, considering the apparent trend for this country's law makers to overhaul the fiscal rules of the game every five years. In 1970, the full extent of tax reform was unveiled. Five years later in 1975, the federal and provincial capitals went mildly berserk and implemented dramatic changes to all of the oil and gas rules. In 1980, the now largely defunct NEP made its unwelcome appearance on the scene, with a whole host of new taxes and incentives. And, in 1985 we have witnessed the demise of the NEP, and, once again, new sets of tax rules at both the federal and provincial levels have been devised. The year 1990 might be a good time to be out of the country on sabbatical, if one believes in five-year cycles! Executive Summary This year, the first shoe fell on March 27 when the federal government and the three producing western provinces announced the signing of the Western Accord. That agreement dealt exclusively with changes to federal legislation, and tossed the ball to the producing provinces to make their own tax changes with a similar positive thrust. The second shoe fell almost three months later on June 24 when the Province of Alberta announced changes to the province's royalty and incentive regimes. Federal Changes Very briefly, the Western Accord, in conjunction with Finance Minister Wilson's May 23, 1985 budget, announced the following changes to the fiscal regime facing the oil and gas industry.The Natural Gas and Gas Liquids Tax, the Incremental Oil Revenue Tax, the Canadian Ownership Special Charge, he Petroleum Compensation Charge, and export charges on both product and crude exports are to be repealed.The Petroleum Incentives Program (PIP) is to continue until March 31, 1986.The Petroleum and Gas Revenue Tax (PGRT) will be phased out from 1986 to 1989.Royalties and incentives applicable to operators in the Canada Lands are to be studied.