How is the potash royalty calculated?
All potash produced in Saskatchewan is subject to a base tax calculated on the volume of the commodity that is sold.
On top of this, there is a profit tax that depends on how much money the companies earn from selling the potash (revenue minus the costs of producing and selling). It has two tax brackets, with the lower rate at 15 per cent of profits and the higher one at 35 per cent for more substantial profits. A further complicating factor is that companies don't pay the profit tax on sales that are higher than what they sold, on average, in 2001 and 2002. That's to encourage them to increase production.
In addition, potash produced on Crown land - where the province owns the mineral rights - draws a separate royalty that amounts to about 2 to 3 per cent of the value of the potash mined there. But companies get to deduct this from some of their other resource tax payments.
What boosts royalties the most?
The profit tax generates most of the province's potash revenue. So when there is a spike in prices and profits shoot up, the province reaps some of that windfall. A rise or drop in sales can also affect the royalties, but not as much as a change in prices.
If there is a dramatic cut in prices, the government's take may drop to the level of the base production tax.
Who is paying the tax?
By far the largest royalty payments come from Potash Corp. of Saskatchewan Inc., the province's biggest producer. Mosaic Co. and Agrium Inc. come next in line, but are smaller contributors. All other potash producers are far behind those top three.
How big is the take?
The amount of money flowing into the province's coffers varies dramatically, depending on the price of potash.
While it averages between $200-million to $500-million, it's not always in that range. With a spike in commodity prices in 2007 and 2008, the government raked in $1.36-billion in its 2008-2009 fiscal year.
The province was expecting an even greater windfall the following year - as much as $1.9-billion - but the market crash made farmers leery of buying fertilizer, and potash prices plunged. The government drastically chopped its expectations and by the end of the year it ended up having to send back some of the royalty prepayments it had received from potash producers, putting a $184-million dent in its budget.
How much will it generate this year?
The Saskatchewan government predicted in its 2010-2011 budget that it would take in $221-million in potash royalties. But it revised that figure downward late in August, and now says it will glean about $205-million.
That's about one-fifth of the revenue the province collects in taxes and royalties from the oil and gas sector. Still, it is a significant take, and will represent about 2 per cent of Saskatchewan's overall revenue of around $10.1-billion.