Canada: LNG Equipment And Buildings: Canadian Government Proposes Accelerated Writeoff

On February 19, 2015, the Canadian government released draft regulations introducing accelerated capital cost allowance (CCA) for facilities in Canada that liquefy natural gas. The government's intention is to encourage investment in new facilities to support the liquefied natural gas (LNG) industry in Canada.

The draft regulations provide for an additional 22-per-cent CCA allowance for equipment and structures used for natural gas liquefaction that will bring the total CCA rate to 30 per cent. Property eligible for the additional allowance (eligible liquefaction equipment) will include equipment that is part of an "eligible liquefaction facility," being a facility in Canada that liquefies natural gas, including controls, cooling equipment, compressors, pumps and storage tanks. Equipment acquired to produce oxygen or nitrogen is excluded, as are buildings, breakwaters, dock, jetties or wharves. Pipelines will also be excluded, except for pipelines used to move natural gas within an eligible liquefaction facility during the liquefaction process or LNG. Equipment used exclusively to regasify LNG and electrical generation equipment are also not eligible for the accelerated CCA rate.

The draft regulations also provide for an additional four-per-cent allowance for non-residential buildings at an eligible liquefaction facility (eligible liquefaction buildings) that brings the total CCA rate up to 10 per cent.

All eligible liquefaction equipment in relation to a particular facility is deemed to be a separate class of property, as are all eligible liquefaction buildings in relation to a particular facility.

The accelerated CCA rates only apply to equipment and buildings acquired after February 19, 2015 and before 2025. Further, the equipment or building cannot have been used or acquired for use for any purpose before it was acquired by the taxpayer. This "new equipment" requirement is similar to other accelerated CCA provisions in Canada—such as the clean energy generation and energy conservation equipment rules in Classes 43.1 and 43.2 of the Income Tax Regulations—and to the "new equipment" requirement for claiming investment tax credits for qualified property under subsection 127(9) of the Income Tax Act.

The regular "half-year" and "available for use" rules will apply to the accelerated CCA rates. Only half of the usual deduction will be available in the year the property is acquired or becomes available for use. Further, the property must be available for use before any CCA can be claimed.

The accelerated CCA will also be limited to the income from the taxpayer's "eligible liquefaction activities" in respect of the "eligible liquefaction facility." For this purpose, income will be calculated on a facility-by-facility basis.

An eligible liquefaction facility is defined as a self-contained system located in Canada—including buildings, structures and equipment—that is used or intended to be used by the taxpayer for the purpose of liquefying natural gas. The requirement that the eligible liquefaction facility be used or intended to be used by the taxpayer for the purpose of liquefying natural gas appears to exclude LNG facilities that may be leased to another taxpayer from qualifying for these new rules. However, the lessee taxpayer may qualify if the property is deemed to be acquired by the lessee as a result of the application of the provisions of section 16.1 of the Income Tax Act.

For purposes of determining the amount of additional CCA that may be claimed in respect of each facility, income from eligible liquefaction activities is to be calculated as if the taxpayer carried on a separate business and the only income of that business is from the liquefaction of natural gas at the taxpayer's eligible liquefaction facility. Taxpayers that own the natural gas when it enters the eligible liquefaction facility calculate their income based on the sale of natural gas that has been liquefied, whether sold as LNG or as regasified natural gas. Such taxpayers are deemed to acquire the gas that has been liquefied at a cost equal to its fair market value at the time it enters the eligible liquefaction facility for the purpose of calculating the income from the facility. This is different from the B.C. LNG income tax, which in non-arm's length situations prescribes a detailed calculation of the cost of natural gas when it enters the LNG facility. See our November 2014 Blakes Bulletin: B.C.'s Draft Legislation to Implement LNG Tax – Many Answers, Some Questions for more information.

Further, in computing income to determine how much CCA may be claimed, the only deductions permitted are those that are attributable to the income from the facility. For taxpayers that own the natural gas when it enters the eligible liquefaction facility, deductions are further limited to those deductions that are reasonably attributable to income derived after the natural gas enters the facility. These deductions would include direct costs. However, the proposed regulations do not provide further guidance on other deductions that will be considered to be attributable or reasonably attributable to the income. Based on the jurisprudence and the Canada Revenue Agency's administrative positions regarding similar situations, we would anticipate that these other deductions would include the "regular" CCA on eligible liquefaction equipment and buildings as well as CCA on "ineligible" property that is part of the facility, a reasonable portion of interest charges and an allocation of other indirect expenses (e.g., overhead) to the extent attributable to the income. Taxpayers may wish to consider structuring the financing of such facilities to maximize the amount of income from the facility to ensure that the maximum amount of CCA is available. For example, interest expense incurred on debt of a partner that is a member of a partnership operating an eligible liquefaction facility would not reduce the partnership's claim for additional CCA.

Taxpayers operating a "peak shaving facility," but who do not own the natural gas when it enters the eligible liquefaction facility, calculate their income based only on the natural gas distributed by the taxpayer that has been liquefied by the taxpayer. A peak shaving facility is an eligible liquefaction facility (or part of it) used to liquefy natural gas where the taxpayer distributes natural gas that is liquefied and regasified, which is subsequently commingled with natural gas that has not been liquefied. The apparent intention behind this rule is to put taxpayers that liquefy their own gas on a level playing field with taxpayers operating a peak shaving facility that distribute gas that they do not own. The rule ensures that taxpayers that distribute gas that they do not own from a peak shaving facility compute their income eligible for accelerated CCA only on gas that they actually liquefy, rather than all gas that they distribute.

Except for an eligible liquefaction facility that primarily liquefies natural gas not owned by the taxpayer for a fee, eligible liquefaction equipment will continue to be "specified energy property" as defined in the Income Tax Act. As a result, other than for taxpayers that are "principal business corporations," the specified energy property rules will still apply to limit the total amount of CCA that a taxpayer may claim in respect of specified energy property to, in general, the amount of the taxpayer's total income from those specified energy properties. As a consequence, a taxpayer having income from an eligible liquefaction facility but losses from other specified energy property may find that it is not able to claim the full amount of the accelerated CCA due to the application of the specified energy property rules.

Taxpayers reorganizing their business should carefully consider the impact of these rules. In many cases, the property will be deemed to remain in the same, separate prescribed class and still be eligible for the accelerated CCA rate, but planning will be required. Further, taxpayers may wish to consider the timing of any reorganization to ensure that income is available in the year to claim against the accelerated CCA. Otherwise, the newly reorganized taxpayer—although not subject to the half-year rule and still eligible to claim the accelerated rate—may not have enough income in the year from the LNG facility to claim the full amount of CCA.

The Department of Finance is inviting comments on the draft proposals until March 27, 2015. Interested parties may email or write to the Department at:

Tax Policy Branch
Department of Finance
90 Elgin Street
Ottawa, Ontario K1A 0G5

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
27 Oct 2016, Seminar, Toronto, Canada

Please join members of the Blakes Commercial Real Estate group as they discuss five key provisions of a commercial real estate purchase agreement that are often the subject of much negotiation but are sometimes misunderstood.

1 Nov 2016, Seminar, Toronto, Canada

What is the emotional culture of your organization?

Every organization and workplace has an emotional culture that can have an impact on everything from employee performance to customer or client satisfaction.

3 Nov 2016, Seminar, Toronto, Canada

Join leading lawyers from the Blakes Pensions, Benefits & Executive Compensation group as they discuss recent updates and legal developments in pension and employee benefits law as well as strategies to identify and minimize common risks.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.