Finance has released carbon tax legislation.
Along with legislation, Finance has also released details of a related regulatory framework that will apply to any province or territory that does not implement a carbon pricing system before 2019 that meets the federal standards. The federal carbon pollution pricing backstop includes a carbon levy applied to fossil fuels, as well as a pricing system for industrial facilities that emit greenhouse gases above a certain threshold. Where a province enacts a carbon levy that does not meet the federal thresholds, the backstop will "top-up" the provincial systems to the federal level. Finance is accepting comments on the draft legislative proposal until February 12, 2018, and on the regulatory framework until April 9, 2018.
Most provinces, including Quebec, Ontario, Alberta and British Columbia, have adopted their own carbon levies and therefore will not be impacted by Finance's proposed rules. However some provinces, including Saskatchewan have not yet introduced such a program. According to Finance, provinces and territories must choose to opt-in to the federal system or implement their own carbon pricing legislation by March 30, 2018.
In 2016, the federal government published a carbon pricing benchmark that indicated that Finance would introduce a carbon pricing "backstop" system that will apply in any province or territory that does not have a carbon pricing system in place by January 1, 2019 that aligns with the benchmark. Finance also released a carbon pricing technical paper for comments in 2017 to obtain feedback on the design of the backstop.
Fossil fuels that will be subject to the federal levy include liquid fuels (e.g., gasoline, diesel fuel, and aviation fuel), gaseous fuels (e.g., natural gas) and solid fuels (e.g., coal and coke).
Levy on fossil fuels for producers or distributors
The draft legislative proposals set the fossil fuel levy at $10 a tonne for 2018, which will increase $10 per year until it is $50 a tonne in 2022. Generally, the fuel producer or distributor at the top of the supply chain will have to pay the levy, which will apply to fuels used in a jurisdiction (regardless of whether they are produced in or brought into the jurisdiction).
Output-based pricing system for industrial facilities
Generally, facilities that emit 50 kilotonnes or more of greenhouse gases per year will be subject to the proposed output-based pricing system. These facilities will be able to purchase fuel levy-free, and will instead pay a carbon price on emissions of $10 a tonne in 2018, which will also increase $10 per year until it reaches $50 a tonne in 2022.
Smaller facilities with emissions below that threshold would be able to opt in to the output-based system, rather than paying the fossil fuel levy.
The federal government intends to review the rules again in 2022.
For more information, contact your KPMG adviser.
Information is current to January 26, 2018. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500