Canada: Energy @ Gowlings - February 3, 2010

Last Updated: February 8 2010

Edited by Paul Harricks


  • Restrictions on Input Tax Credits for HST on Energy and Other Inputs
  • A Quick Discourse on Shale Ga
  • Korean Companies Set to Open the Green Economy in Ontario

By: Michael Bussman

British Columbia and Ontario are replacing their provincial sales taxes and the federal Goods and Services Tax (GST) with a single Harmonized Sales Tax (HST) from July 1, 2010. The federal legislation amending the Excise Tax Act received Royal Assent on December 15, 2009.

As part of the implementation, British Columbia and Ontario will impose restrictions on input tax credits for HST incurred on energy and a limited range of other inputs.

These restricted input tax credits are to be known as "specified input tax credits" (Specified ITCs). Specified ITCS will eliminate recovery of the provincial component of the HST, i.e., 7 of the 12 per cent HST in British Columbia and 8 of the 13 per cent HST in Ontario.

The restrictions on recoverability for inputs of energy should have the most significant impact as energy inputs are currently fully exempt under the existing provincial sales tax regimes. In entering into long-term design, build and operate agreements, consideration should be given to structuring supply of energy in an HST efficient manner.

Scope of the Restrictions

The restrictions on Specified ITCs for energy will include electricity, gas, combustibles and steam energy. However, the restrictions will not extend to HST incurred on energy used in producing goods for sale, nor for designing or producing equipment for producing goods for sale. Nonetheless, energy used for air conditioning, lighting, heating or ventilation of a production site will generally be subject to the restrictions.

The restriction on Specified ITCs for energy will not extend to motive fuels acquired to power a propulsion engine. However, restrictions on Specified ITCs will extend to HST on non-diesel fuel to power a vehicle weighing less than 3,000 kg that is required to be registered for use on public highways, as well as such road vehicles, their parts and servicing.

Other restrictions will include Specified ITCs for certain telecommunications services (other than internet access or toll-free numbers), as well as any on food, beverages and entertainment.

"Temporary" Restrictions

For now, the restrictions are intended to be temporary. After the first 5 years following implementation, Specified ITCs relating to restricted items are to be phased out over a three-year period. Accordingly, in the sixth year, the restrictions would be limited to 75 per cent of the Specified ITCs; in the seventh year, the restrictions would be limited to 50 per cent of the Specified ITCs; and in the eighth year, the restrictions would be limited 25 per cent of the Specified ITCs before being eliminated in the ninth year.

Only time will tell if these restrictions, in fact, will be lifted by future governments.

Definition of "Large Business"

The restrictions are only to apply to "large businesses", though the threshold is fairly low.

A person who is registered for GST/HST purposes would be considered to be a "large business" if the total consideration for GST/HST taxable supplies made in Canada by the person, or by associates of the person, that was paid or payable in the previous fiscal year exceeds $10 million.

In calculating the $10 million threshold, amounts attributable to consideration for supplies of zero-rated exports, supplies made outside Canada through a permanent establishment in Canada, and supplies deemed to have been made for nil consideration pursuant to a joint election made by specified members of a qualifying group will be included.

However, amounts attributable to consideration for supplies of financial services, exempt supplies, supplies of real property that is capital property, and supplies of the goodwill of a business in situations where GST/HST is not payable on those supplies need not be included.

Further Guidance

Many of the details of these changes are expected to be in Regulations to the Excise Tax Act that will be released at a later date, as well as in administrative policy to be issued soon by the Canada Revenue Agency. Since these restrictions are similar to the restrictions on the recoverability of the Quebec Sales Tax, the administrative policy is expected to be similar to that already issued by the Ministère du Revenu du Québec.

By: Alan Hollingworth

Much has been written recently on the topic of shale gas. The following represents an attempt to explain the topic to the uninitiated. Space limitations dictate that this description is very brief and far from complete.

Shale gas is considered to be unconventional gas, along with coalbed methane and tight gas. The presence of shale gas has been known for a long time but its economics of production were always questionable because of the low permeability of the rock in which the gas is located. In other words, a given well would produce a relatively small amount of gas which was not as economic as other wells. Advances in hydraulic fracturing and horizontal drilling have improved the picture for shale gas. Wells are now routinely drilled down and then horizontally, thus exposing the well bore to a greater area. Combined with techniques to fracture the rock and thereby free the gas, greater production is possible from a given well.

Advances in shale gas technology have resulted in large natural reserve additions, particularly in the United States where the trend is more advanced. Indeed, the US has seen net additions to its gas reserves in the last couple of years, following years of decline.

The prospect in Canada is similar although the industry is not as far along. Shale reserves exist in many areas of Canada, particularly in the Montney and Horn River areas of B.C. but also over large areas of Alberta and in the St. Lawrence River basin. Areas in B.C. are producing already. The Alberta Department of Energy estimates that the Western Canada Sedimentary Basin, the chief producing area of Canada, contains up to 100 trillion cubic feet of gas, although by no means all of that gas would be recoverable in an economic fashion based on today's technology.

It is also true that shale gas production is seen as a potential health hazard by many people. The fracturing process referred to requires large volumes of water, sand and several toxic chemicals. Home owners in areas of shale gas production have complained about fouled drinking water and illness. Recently, New York City requested a ban on shale gas production in the catchment area for its drinking water supply.

In brief, shale gas represents a significant additional source of natural gas although techniques for its production may need refinement to improve its acceptability to all stakeholders.

By: Danielle Waldman

On January 21, 2010, the McGuinty government announced that it has signed an agreement with a South Korean consortium to bring green energy and green manufacturing jobs to Ontario's economy in accordance with the policy objectives of The Green Energy and Green Economy Act, 2009 (the GEA). The deal provides that the consortium, led by Samsung C&T Corporation and the Korean Electric Power Corporation, will invest $7 billion in the province, build 2,500 megawatts of renewable energy generation in the form of wind and solar, and to create more than 16,000 jobs in the province. These jobs will be in constructing, installing and operating the renewable energy projects as well as direct manufacturing jobs.

The province has also agreed to pay the consortium $437 million in incentives through the Economic Development Adder if the consortium builds four manufacturing plants in the province. It is anticipated that the plants will manufacture wind turbine towers and blades, as well as solar inverters and modules. The plants are expected to be built between 2013 - 2015 in separate phases, and the incentives are tied to the manufacturing plants being built on time. The incentives will result in an additional $1.60 being added annually to each consumer's electricity bill across the province over the lifetime of the generation contracts.

The deal has a term of 25 years, in hopes of establishing a firm base for a green manufacturing sector in Ontario for many years to come. The products manufactured at these plants will be available for use in Ontario and will assist other renewable energy developers to meet the domestic content requirements of the GEA's feed-in tariff (FIT) program, as well as for export across North America.

The renewable energy generation projects built by the consortium will also qualify for the premium being paid for renewable energy generation in the province pursuant to the FIT program. If all 2,500 megawatts are built, the projects will provide enough electricity to light up more than 580,000 homes in the province. Construction is expected to occur in five phases, with the first phase scheduled to be completed in 38 months. The deal required the province to reserve capacity on the transmission grid, which was accomplished by the Ministerial Directive issued to the Ontario Power Authority on September 30, 2009 setting aside capacity in Chatham-Kent, Essex and Haldimand for the first phase of the consortium's development. Transmission for subsequent phases will depend on the consortium's ability to deliver the manufacturing plants.

Many locally-based developers and manufacturers are claiming that the consortium has been provided with an unfair competitive advantage in the green marketplace. Many of the criticisms are that there was no "openness and transparency" as is required for all other players in the marketplace. Did the government provide priority access to the grid for the consortium? Or was the government just trying to jump start the green economy that they promised would be built through the introduction of the GEA? Or was this an attempt by the government to compete with the "Buy American" policies of the United States and woo international manufacturers to our jurisdiction? These are all questions that will be addressed in due course as the consortium begins operations in Ontario over the next few months.

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
16 Jan 2018, Seminar, Birmingham, UK

Join Gowling WLG's pensions team as they explain some of the biggest challenges facing trustees and employers in the coming year and provide practical ways of dealing with them.

23 Jan 2018, Seminar, London, UK

Join Gowling WLG's pensions team as they explain some of the biggest challenges facing trustees and employers in the coming year and provide practical ways of dealing with them.

25 Jan 2018, Seminar, Birmingham, UK

2018 is set to be another big year in employment, with employers set to face new challenges and responsibilities. At our event, looking ahead to next year, we will be discussing four key issues you might face in 2018, providing useful tips and answering your questions.

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
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 you may opt out by clicking here

    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.

    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.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    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.

    By clicking Register you state you have read and agree to our Terms and Conditions