and Revenue Administration
Corporate Tax Act
Special Notice Vol. 5 No. 39
||December 18, 2013
||Alberta Treasury Board and Finance, Tax and
|For more information:
5 No. 39 / December 2013
SPECIAL NOTICE - QUALIFYING ENVIRONMENTAL TRUSTS
NOTE: This special notice is intended to provide advance information on legislation expected to be introduced in spring 2014. Every effort has been made to ensure the contents reflect the intended legislation. However, if a discrepancy should occur in interpretation between this special notice and the legislation, the legislation will take precedence.
A qualifying environmental trust (QET) is a special kind of trust under the Income Tax Act (Canada) that is maintained solely for the purpose of accumulating funds to finance the future reclamation of a qualifying site, such as an oil sands mine or a pipeline, in Canada. A QET is the only vehicle that enables a corporation to claim a tax deduction in the year for amounts set aside for future reclamation.
To help ensure there are sufficient funds to finance reclamation at the end of a project’s life, Alberta requires its oil sands operators to have accumulated the funds needed for reclamation at least five years before the project is expected to cease operations. Similarly, the National Energy Board requires pipeline corporations to start accumulating funds for reclamation in 2014. It is expected that corporations required to prefund reclamation will use QETs for this purpose so that contributions are tax deductible.
Currently, a corporation that uses a QET must include the QET’s income from the year in its own calculation of taxable income, and pay federal and provincial income tax on that income at its effective rate for the year. However, as the corporation is precluded from using the funds in the QET for anything other than reclamation, it must use funds from its active business to cover the tax payable on the QET’s income. As the corporation is already reporting its income, QETs are not currently taxed in Alberta.
The new tax regime for QETs that Alberta is implementing effective January 1, 2014 is revenue neutral to Alberta, but provides a process whereby the QET will ultimately provide the funds to pay the corporation’s income taxes on its income for the year. Under the special tax regime, the corporation will still report and pay tax on its QET’s income for the year. However, the QET will also be required to pay tax on its income for the year at the corporate rate of 10%. To offset this second tax on the QET’s income, the corporation will receive a refundable tax credit equal to the amount of tax paid by the QET to Alberta. Legislation to implement this tax regime is scheduled for spring 2014.
Alberta’s new tax regime for QETs parallels the federal tax regime for QETs and is similar to regimes already in place in Saskatchewan and British Columbia.