Alan Ross is the incoming Calgary managing partner of Borden Ladner Gervais LLP. Beverly Gilbert is national leader of Borden Ladner Gervais LLP's commodity tax group.
Alberta's New Democratic government recently passed legislation to usher in the province's first carbon levy. The Climate Leadership Implementation Act is the latest articulation of Alberta's transitioning policies on climate change in general and carbon pricing in particular. With much of its detail to come in future regulations, it raises as many questions as it answers.
Chief among those questions is the act's effect on Alberta businesses' competitive position, regulatory compliance requirements and alignment with other jurisdictions.
While taxes such as GST and HST are refundable to businesses, the carbon levy is non-refundable. Companies generally will not receive refunds for the carbon levy paid on fuel used in their businesses. Therefore, businesses will likely build that cost into the price of their products. For example, applying a carbon levy to fuel will likely mean more expensive airline tickets.
Even with a carbon tax, businesses operating in Alberta will be better off than businesses operating in British Columbia, Saskatchewan and Manitoba, as these provinces collect a non-refundable PST that is applied generally on the purchase of all tangible personal property, versus having just the carbon levy, which will be only on fuel. In addition, British Columbia also imposes its own carbon tax. Alberta businesses will be worse off than businesses operating in provinces, such as Ontario, that have harmonized their PST with the GST (creating a refundable HST) and do not levy a carbon tax.
Implementation of the carbon levy will have a significant impact on businesses operating in Alberta beyond the mere cost of the levy itself, as the remittance and tax-reporting process will be complex and burdensome.
Producers will have to track and report all fuel they manufacture, buy, use and import. Requirements to put tracking processes in place and to update accounting systems will make compliance expensive. Businesses that fail to account for and remit the carbon levy properly could face significant consequences, including a 50-per-cent penalty if the error is thought to be because of neglect or carelessness.
In addition, businesses will not be able to carry out certain activities in Alberta, including production, processing and refining of fuel, and flaring or venting, unless they are registered for the carbon levy. Alberta can refuse or cancel the registration of a business if it contravenes the carbon-levy legislation in Alberta or similar legislation in another jurisdiction.
This might mean a contravention in B.C. could prevent a business from operating in Alberta. This would amount to a forced cessation of business and almost certainly lead to a legal challenge. Furthermore, it is unclear how the carbon levy will co-exist with the federal government asserting its powers on climate change.
Another factor that adds to the complexity of administering the carbon levy is exemptions. Businesses will face administrative costs in ensuring they obtain the necessary documentation to support exempt sales to consumers. Further, the legislation places a duty on businesses not to collect the carbon levy on sales of fuel to exempt consumers and also to properly determine whether a buyer is entitled to the exemption. Getting it wrong or not getting the proper documentation could lead to a contravention of the act. Given the potentially dire consequences of contravention, businesses should not take this duty lightly.
It is evident that Canada's diverse carbon-pricing architecture has suddenly become more complex, with Alberta's carbon levy now at the centre of that complexity.
Many issues with the legislation remain to be resolved in addition to those discussed above, such as inadequate clarity on collection and remittance, and a failure to provide accommodation for the collection of the carbon levy in joint ventures. It is hoped consultation with industry takes place and the regulations remedy these issues.