Alberta offers property tax exemption to energy companies drilling wells or building pipelines
CALGARY -- The Government of Alberta has announced new supports for the energy industry in an effort to bolster the recovery of the province's economy during the COVID-19 pandemic.
The province introduced a three-year property tax exemption beginning in 2022 for energy companies drilling new wells or building new pipelines and has eliminated the well drilling equipment tax for new drills.
Minister of Municipal Affairs Tracy Allard announced the decision Monday via teleconference, stating that four scenarios proposed under the previous government would've had a drastic impact on tax revenue for municipalities with declines of up to 20 per cent..
"We heard from municipalities that, if we continued with the four scenarios, they'd be forced to raise taxes significantly or cut services or both," explained Allard. "And we heard from oil and gas producers that if we did not address their tax concerns, they would no longer remain viable.
"This was a very complex and nuanced decision, as every factor caused a domino effect."
Alberta will also lower assessments for less productive oil and gas wells. The province previously announced a 35 per cent assessment reduction on shallow gas wells for three years.
Al Kemmere, president of the Rural Municipalities of Alberta (RMA), says his organization supports the modified approach but admits it will present challenges for municipalities in the coming years with the reduction in the assessed values.
"When we see a tax holiday for new drills, those incentives are great incentives to help industry — and I credit them for that — but the challenge is those municipalities are going to be out those dollars and then with the change to the well drilling equipment tax, that again is a tax that was identified as a need to be put in place and to be maintained in place over the years to recognize the extreme infrastructure challenges that come forward to the municipalities when exploration takes place," he said.
"But I think in the interest of trying to work towards a solution, those are items that my members will struggle with but I believe they will be willing to try and come forward and try to do their part for the economy."
The province expects the moves will help attract investment to the energy sector.
Okotoks business owner Ed Povhe is a supporter of the oil and gas industry in Alberta.
He says when that industry is booming, the trickle down effect is big for small business.
But he believes a reprieve from taxes might not have the best impact on small business.
"If my property taxes go up because an oil company gets a break just so it's revenue neutral to the province, that's not good," Povhe, who owns Bistro 1882 restaurant, said.
The Rural Municipalities of Alberta approve of this temporary measure, but believe some communities will be frustrated by the province's action.
"We are going to see some pushback, and understandably so," said Al Kenmere, president of the association. "Because these are tax dollars and these are decisions that are not being made by those municipalities on their revenue pieces."
The industry believes this is not a reprieve on taxes.
"We don't view this as tax breaks," said Tim McMillan, president and CEO of the Canadian Association of Petroleum Producers.
RMA said its its communities were owed $173 million in unpaid property taxes last year from oil companies, and $81 million the year before.
Energy demand - according to a report last week by the International Energy Agency - is expected to increase12 per cent between 2019 and 2030.
Its now on course to increase only nine per cent in that same time period. Growth periods pre-COVID are expected to return in early 2023.
Oil demand is slated to plateau in 2030.