Alberta scraps tax credit; fattens coffers

The Alberta government has pulled the plug on a royalty tax credit introduced in 1974, adding another C$111 million a year to its coffers when the change takes effect Jan. 1.

The credit was enacted in response to a Canadian government decision to eliminate tax deductions for royalties paid by oil and gas companies.

New federal tax changes will make royalty payments fully deductible starting in 2007 and are accompanied by lower corporate tax rates. As a result, Alberta Energy Minister Greg Melchin said the rationale for the provincial credit is gone.

“We just felt that the program had run its course,” he said.

George Fink, president of Bonterra Energy Income Trust, said the credits have helped start-up companies to provide collateral for bank loans and as a way to attract investors.

He said eliminating the tax is a “bit unfair” because it will negatively affect the credit ratings of smaller companies.

The Small Explorers and Producers Association of Canada estimates the credit represents about 15 to 20 percent of the cash flow of its member companies.

An association spokesman said scrapping the program comes at a bad time for producers who have been hurt by the slump in natural gas prices. He noted that finding new oil and gas reserves costs three times what small companies take in.

Dropping the credit comes at a time when candidates to become Alberta’s next premier are under mounting public pressure to hike the province’s share of resource revenues.

Brian Mason, the leader of the opposition New Democratic Party welcomed the cancellation of a “corporate giveaway. ... The end of this program means a victory for Albertans.”

—Gary Park