Potash Corp. protests changes to tax regime

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The Saskatchewan government's move to tweak the way it taxes potash companies prompted one of the world's largest fertilizer firms to warn about the implications for its bottom line – and the province's ability to attract business.

Potash Corp. of Saskatchewan Inc. criticized the ruling Saskatchewan Party after its 2015-16 budget cut the amount potash companies are allowed to deduct from tax bills each year.

While the annual deduction has been trimmed, the cumulative amount of tax deductions available to potash producers over time has not changed.

The province's new potash tax structure comes amid crashing oil prices.

The government predicts revenue from oil will total $903-million this fiscal year, down $661-million compared with its last budget. The Saskatchewan Party said its potash plans will help it offset this decline.

Alberta is set to release its budget March 26, and while its balance sheet will be hammered by low oil prices, it does not have an alternative similar to Saskatchewan's short-term financial solution.

Potash Corp. chief executive Jochen Tilk said his company is "disappointed" in Saskatchewan's decision.

"While we understand the difficult revenue situation facing the government, we are nearing completion of a $6-billion investment in Saskatchewan which was based on the existing tax structure remaining in place," he said in a statement late Wednesday. "Changing the rules midstream impacts the ability of our shareholders to earn a fair return on their capital and undermines Saskatchewan's relative competitiveness."

The company said its pretax profit will fall by $75-million to $100-million in 2015 because of the tax changes. After taxes, this roughly translates into a drop of between $56.25-million and $75-million. Potash Corp. previously expected its net income to range between $1.6-billion (U.S.) and $1.86-billion in 2015, according to its forecast released in January.

Saskatchewan Premier Brad Wall expects the tax change to add $150-million (Canadian) to the province's total potash revenue this year. His budget calls for a surplus of $107-million, based on revenue reaching $14.28-billion and expenses hovering around $14.17-billion.

Potash companies can claim capital expenses as tax deductions in Saskatchewan. The government did not change the size of the producers' potential tax deductions. Instead, the province reduced the amount of capital expenses companies can deduct from their tax bills each year. The province said the change was made after consulting potash players.

"This measure is an interim step that will be followed by a broader review of the entire potash taxation regime," the government said in a statement. The process will "gather input from sector stakeholders," the statement said without identifying who qualifies for participation. The goal will be to simplify and modernize the tax regime, Bill Boyd, Saskatchewan's Economy Minister, said in the statement.

Potash Corp., which is part of Canpotex Ltd. potash alliance alongside Agrium Inc. and Mosaic Co., said its long-term concern is whether the new rules will be competitive. Canpotex competes against Belarusian Potash Co. and Russia's OAO Uralkali. Belarus and Russia dissolved their potash co-operation in 2013.

"What's the best use to put to the resource? We're in partnership with the government. We've got this natural resource. We want to use it for the benefit of the province, the shareholders, the employees," Randy Burton, a spokesman for Potash Corp., said in an interview. "In order to do that, you've got to make sure the system works for everybody, or at some point do you cut back production? Something has to give."

Mosaic spokeswoman Sarah Fedorchuk said her firm has not yet calculated how the new potash rule will affect its finances.

"Obviously no company likes paying more taxes, but we're continuing with our announced projects and we'll be carrying on looking for opportunities in the province," she said.

Agrium does not expect the new rule to hit its bottom line.

"We understand the government's desire to gain more revenue [in light of] the drop in oil prices," spokesman Todd Coakwell said. "We do believe we should be paying our fair share of tax."