Alberta grants property tax holiday to oil producers

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Oil producers in Alberta will get a three-year property tax vacation on new wells and pipelines and will no longer have to pay a well-drilling equipment tax, the province announced Monday.

But rural municipalities remain concerned the government has done little to help them claw back what they estimate is $173-million in taxes they’re already owed by energy producers.

The tax breaks dance a fine line between appeasing both the energy industry and the United Conservative Party government’s rural base. Municipal Affairs Minister Tracy Allard said she hopes the change will help an industry battered by low oil demand and prices, but acknowledged it’s an interim measure as the province works on a long-term solution.

Under the rejig, the province will also reduce property taxes for less-productive oil and gas wells for three years and continue a program that cut assessments on shallow gas wells by 35 per cent.

The government made the move after months of deliberation about the property taxes that oil and gas companies pay in Alberta, a debate that pits the competing needs of energy companies and rural municipalities against one another.

On one hand, oil and gas producers say the current model fails to take into account asset depreciation, thus inflating their tax bills. Municipalities counter they’ll lose hundreds of millions of dollars in crucial revenues under the change – a loss compounded by the unpaid property tax tab.

“This was a very complex and nuanced decision,” Ms. Allard said Monday.

The government initially proposed overhauling the property tax assessment model altogether, which would have resulted in energy companies paying between 7 per cent and 20 per cent less. But Ms. Allard put that full-scale revamp on hold when she was appointed minister in August, saying more consultation with industry and municipalities was crucial before making any long-term decisions.

That makes the changes announced Monday something of a compromise, but Al Kemmere, president of the Rural Municipalities of Alberta, said the government needs to do more to force the hand of oil and gas producers that don’t pay their property tax bills.

“I make no bones about this – the unpaid taxes is our number one concern,” he said. The situation is so dire for some municipalities, he said, they are on the cusp of being unable to pay their bills.

“All the other taxpayers within the province have an obligation to pay their taxes. We just believe the [energy] industry needs to have that same obligation,” he said. “We understand the industry has had a tough go, but this needs regulatory changes that close that loophole.”

Industry and Ms. Allard agree with RMA that the issue needs to be solved. However, the Canadian Association of Petroleum Producers reckons the RMA’s $173-million estimate – which it landed on through a survey of all of its members – is grossly inflated.

Ben Brunnen, CAPP vice-president, told The Globe and Mail the unpaid tax issue is not as widespread throughout the industry as RMA posits.

Mr. Brunnen didn’t have an alternative dollar figure on unpaid oil and gas property taxes, but said his association believes the vast majority of unpaid tax bills are because of bankrupt natural gas producers such as Trident Exploration Corp. Last year, Trident abruptly shuttered its Alberta operations, leaving almost 100 people out of work and a $329-million cleanup bill for the 4,700 wells it dumped on the province’s orphan well fund.

Mr. Kemmere disagreed, saying “a good percentage” of the $173-million is attributable to companies who “just chose not to pay their taxes, rather than bankruptcies.”

Either way, Ms. Allard said her government is “committed to looking at” the issue.

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