February 20, 2015 / 2:37 AM / 3 years ago

Canada unveils new tax measures to boost LNG investment

Canada's Prime Minister Stephen Harper speaks during Question Period in the House of Commons on Parliament Hill in Ottawa February 18, 2015.Chris Wattie

OTTAWA/VANCOUVER (Reuters) - Canada unveiled tax measures on Thursday that will allow investors in new liquefied natural gas plants to recover costs more quickly, improving the competitiveness of projects proposed for the Pacific coast province of British Columbia.

Industry groups said the new measures would encourage investment in LNG projects in Canada, some of which have stalled in recent months as companies cut spending in response to plummeting oil prices.

"It certainly helps move the ball forward," said David Keane, president of the B.C. LNG Alliance, which represents seven of 19 projects proposed in British Columbia.

Under the rules, companies building new LNG export terminals will be able to deduct capital costs at a faster rate, allowing them to defer tax payments and recoup investment more quickly.

Ottawa will establish a capital cost allowance rate of 30 percent for equipment used in natural gas liquefaction, up from a current rate of 8 percent rate, and 10 percent for buildings at a facility that liquefies natural gas.

The tax relief will be available for capital assets acquired after Feb 19 this year and before 2025.

The Canadian Association of Petroleum Producers (CAPP), which lobbied for the changes, said the tax breaks will allow Canadian projects to better compete with rival developments in the United States and Australia.

"This tax classification change actually puts Canadian LNG facilities on a more level playing field with our international competitors," said Ben Brunnen, manager for fiscal and economic policy with CAPP. "And that's going to improve our competitiveness for those scarce dollars."

Canadian Prime Minister Stephen Harper, who introduced the changes in a televised news conference from a Vancouver suburb on Thursday, said the measures would encourage investment that otherwise would not occur.

"The business of shipping natural gas is capital intensive. The bar for entry is high," he said.

Last week, Reuters revealed that the government was again studying the idea of new tax breaks in the upcoming budget for companies that build LNG plants.

Roughly two dozen LNG terminals have been proposed in Canada, with the majority planned for the West Coast province of British Columbia. Backed by energy giants such as Malaysia's Petronas as well as Royal Dutch Shell and Chevron Corp, the projects would ship North American gas to Asian markets.

Reporting by Julie Gordon; Editing by Ken Wills

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