As emissions and cap-and-trade regimes develop, the tax issues
relating to such regimes evolve and receive further
consideration. One aspect of Alberta's emission reduction
regime is the Climate Change and Emissions Management Fund
(the Fund). A greenhouse gas emitter that is subject to
Alberta's provincial emission reduction target may pay $15 per
tonne into the Fund to the extent its emissions are in excess of
the emissions target set by Alberta's regime. The money
collected by the Fund is intended to be invested into projects,
initiatives and technologies relating to reducing emissions.
One of the tax issues relating to this type of regime is the
nature of contributions to the Fund for tax purposes, and in
particular whether the contributions are deductible for tax
The Canada Revenue Agency (CRA) was recently asked whether the
administrative penalty that may be assessed on a person who has
failed to meet the emissions limits established by Alberta's Climate Change and
Emissions Management Act is deductible for income tax
purposes[i]. CRA noted that section 67.6 of the Income Tax
Act(Canada) prohibits a deduction in respect of any amount that
is a fine or penalty imposed under federal and provincial law by
any person or public body that has authority to impose the fine or
penalty. Accordingly, CRA's view was that amounts
described as penalties under Alberta's Climate Change and
Emissions Management Act are not deductible in computing
taxable income. An interesting result for many taxpayers who
may have taken the position that the payments to the Fund are
remedial payments, as opposed to penalties, and therefore have
claimed deductions as such.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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