$9.2 Billion in Federal Tax Breaks Deliver Boost to Canadian Fossils

Canada missed out on nearly C$9.2 billion in foregone revenue between 2015 and 2019 thanks to income tax breaks to oil, gas, and coal mining companies, according to a Parliamentary Budget Office analysis produced at the request of Sen. Rosa Galvez (ISG-QC).

The government also left behind $179 million in 2019 due to a carbon levy exemption for agriculture, the PBO reported Friday. That amount is expected to increase to more than $1.5 billion in 2030, when the federal floor price on carbon hits $170 per tonne, though the analysts say that figure doesn’t account for the “behavioural response by farmers” that will see them reducing their emissions as the cost rises.

By far the biggest-ticket item in report was the more than $6.1 billion over five years that fossils took away as tax breaks for Canadian development expenses, a long-standing federal program that reimburses up to 30% of a fossil’s expenses to buy new oil, gas, or coal fields and bring them into production.

The annual tax subsidies—which ranged from $1.3 to nearly $2.4. billion over the five-year span—reflect eligible expenses that have levelled off in recent years, the PBO report shows [pdf]: the totals started out around $15 billion per year toward the beginning the century, then spiked as high as $35 to 40 billion between 2005 and 2014, before beginning to moderate in 2015 as the impact of falling oil prices began to hit.

“Yearly growth in the total cumulative resource-related expense pools has slowed since 2014 but they remain at historically-elevated levels,” the PBO writes. “Corporations in the oil and gas sector have experienced declining profits due to various factors since 2014, and therefore corporations have had less opportunity to use expense pools to reduce their taxable income. Moreover, oil, gas, and coal mining corporations have reduced exploration and development since 2014—new annual expenses averaged $21 billion from 2015 to 2019 compared to $31 billion from 2005 to 2014.”

The PBO also points to two long-term advantages that Canadian taxpayers have extended to the fossil industries: companies are allowed to carry forward unused expenses indefinitely if they don’t claim them in a given tax year, and some categories of expenses can be “renounced” to shareholders to reduce their taxable incomes.

The cumulative expense pool hit a high of about $150 billion in 2014, compared to about $40 billion in 2001, the report states. But the PBO says renounced expenses have fallen off sharply in recent years due to declining fossil investment and restrictions on the tax rules that allow the expenses to flow through to investors.

Environmental Defence Canada Senior Program Manager Julia Levin said the PBO report sheds light on a category of tax subsidies that analysts had known about, but for which no public data had been available.

“These are specific measures, specific deductions the government has decided to make available to oil and gas companies so that they pay us less money,” she told Local Journalism Initiative reporter John Woodside. “It would be great if the only way to access this information wasn’t through senators’ requests to the PBO, but at least we can fill in some blanks, and we’re filling in those blanks with big numbers.”

In May 2020, Oil Change International reported that Canada was leading the G20 with the highest per capita public finance for fossil fuel companies, totalling at least C$13.8 billion. Earlier this year, Environmental Defence put the total for all fossil fuel subsidies in 2020 at $18 billion.