Prior to the federal budget of March 22,
2016 (Budget 2016), the tax treatment of emissions
allowances was governed by general principles of income tax
law. Budget 2016 proposes to introduce a specific regime that
applies to emissions allowances.
Pursuant to Budget 2016, emissions allowances will be treated as
inventory. However, due to the potential volatility in the
value of such allowances, the allowances will not be subject to the
"lower of cost or market" method for the valuation of
inventory. Any free allowances received by a regulated
emitter will not be included in income. The emitter will be
entitled to a deduction for an accrued emissions obligation to the
extent that the obligation exceeds the cost of any emissions
allowances acquired by the emitter and used to settle the
obligation. If a deduction is claimed in respect of an
emissions obligation that accrues in one year (for example, 2017)
and that will be satisfied in a subsequent year (for example,
2018), the amount of the deduction will be brought back into income
in the subsequent taxation year (2018) and the taxpayer will be
required to evaluate the deductible obligation again each year,
until it is ultimately satisfied. The amount of the deduction
will be equal to the cost of the emissions allowances acquired by
the taxpayer and which can be used to settle the emissions
obligation, plus the fair market value of any emissions allowances
needed to full satisfy the obligation
The disposition of an emissions allowance (otherwise than in
satisfaction of an obligation under the emissions allowance regime)
will give rise to proceeds that will be included in the
taxpayer's income to the extent the amounts received are in
excess of the taxpayer's cost, if any, of the emissions
These measures apply to emissions allowances acquired in
taxation years beginning after 2016, except that taxpayers can
elect to have the regime apply to emissions allowances acquired in
taxation years ending after 2012.
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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The Government of Alberta recently announced a number of policy changes that will impact the Alberta Electricity Market, composed of its generators, transmitters, distributors, retailers, electricity consumers and wholesale electricity market.
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