Canada: Update: Alberta Carbon Levy

On November 3, the Government of Alberta released the highly anticipated Climate Leadership Regulation (the "Regulations"), which provides further information on how the carbon levy will be implemented and administered in Alberta. The Climate Leadership Act (the "Act") was released earlier this year (for more information see our previous blog post, Alberta Carbon Levy – Legislation Tabled) but, as noted by many observers at the time, the Act is heavily dependent on the Regulations.

The release of the Regulations provides better, but not perfect, clarity in respect of the steps that need to be taken by Alberta businesses to ensure compliance with the Act. The levy itself is effective January 1, 2017, so time is short to implement appropriate policies and procedures.

The Regulations

The Regulations provide further details respecting, among other matters, exemptions from the carbon levy and the fuel supply chain activities and stages which trigger levy payment. Key aspects of the Regulations include the following:

  1. Additional exemptions from the carbon levy are listed and further details on exemptions referred to in the Act are outlined. Important clarification is provided in respect of exemptions for SGER and the use of fuel prior to 2023 in a "production process" (generally, any activity integral to drilling, completing or operating an oil or gas well).
  2. Further activities on which the levy is payable are outlined, along with further times at which no levy will be payable.
  3. Details on the administration of the carbon levy as it applies to entities which distribute and sell natural gas.
  4. Procedures for the application and issuance of licenses and exemption certificates, along with additional rules relating to the expiration, suspension, cancellation and allowable use of exemption certificates and licenses.
  5. Requirements relating to the sale of fuel to exempt persons.
  6. Additional persons who will be considered direct remitters for the purposes of the Act, along with clarification on the duties and obligations of direct remitters.
  7. Guidance on the process that will be followed in respect of the provision of refunds and credits by the Minister.
  8. Further activities which, if carried out, will require a person to be registered under the Act.
  9. Rebates of carbon levy and biomethane credits.

The above list is only a general list of some the topics covered in the Regulations, which contain far more detail. The Act and the Regulations must be read together in order to determine the duties, obligations and tax treatment that your business will be subject to.

Unanswered Questions

While the Regulations provide some further clarity, there remain a number of unanswered questions. Industry is hopeful that resolutions to these outstanding questions will be provided prior to the implementation of the carbon levy. Among the most pressing unanswered questions are:

  1. How will participants and operators of joint ventures, many of whom participate in many different joint ventures using the same legal entity, be treated in respect of registration and reporting? As currently worded, there is a large concern that separate registration and reporting may be required, placing extremely onerous obligations on such participants and operators.
  2. Will any exceptions from the duty of a vendor to confirm exemption status be available in respect of markets on which fuels are traded without the identity of the vendor or purchaser being disclosed?
  3. Can licenses or exemption certificates be granted retroactively?
  4. Will there be any concession or "grace" periods in respect of penalties for failure to register prior to January 1, 2017, given the short time period for implementation of the carbon levy?
  5. What forms of evidence of exemption will be considered acceptable?
  6. What format will carbon levy returns be made in? Draft returns have yet to be finalized.
  7. How will the carbon levy will be reinvested into renewable energy and what opportunities might this create?

It is anticipated that many of these questions will be addressed prior to the carbon levy implementation date. Further, BLG will be hosting a carbon levy seminar on November 17, 2016, featuring a panel discussion which includes Ian Ayton, Assistant Deputy Minister with Alberta Tax & Revenue Administration, along with Beverly Gilbert, Nation Commodity Tax Leader at BLG, Alan Ross, Regional Managing Partner at BLG, and Lesly Meredith, Head of Indirect Tax at AltaGas.

Moving Forward

Businesses need to be prepared for the quickly approaching implementation of the carbon levy. Registration, licensing and exemption requirements must be considered and applications should be made as soon as possible. Processes will need to be in place in time for January 1, 2017, so little time is left to come to ground on how your organization will handle its carbon levy obligations. BLG will be monitoring the implementation of the carbon levy.

About BLG

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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