Alberta’s New Royalty Regime is a Step Towards Competitiveness

To measure the effect of taxes and royalties on investment decisions, the marginal effective tax and royalty rate (METRR) is calculated as the amount of taxes and royalties paid as a percentage of the pre-tax-and-royalty, net-of-risk return on capital that would be required to cover taxes, royalties, and the financing of capital with debt and equity.7 The advantage of this approach is that the var [...] To the extent that the tax or royalty system shares risks with the producers by allowing for the refundability of losses, the government provides an implicit deduction for the cost of risk. [...] These include the phasing out after 2016 of the accelerated depreciation allowance of up to 100 per cent for new mine or mine-expansion assets (certain oil and gas projects are affected by this provision), and the phasing out of the Atlantic Investment Tax Credit fully by the end of 2015.11 There have also been some fiscal changes at the provincial level. [...] Besides the oil extraction tax, there is a production tax of five per cent applied to the gross value at the well of all oil produced.20 Overall, the maximum total tax rate is 10 to 11 per cent. [...] The new post-payout royalty rate has been announced: After recovery of the cost allowance, the new royalty rates are below the older rates for a wide range of price levels as shown in Figure 1.25 Further, the government has also announced two new programs — the Enhanced Hydrocarbon Recovery Program and the Emerging Resources Program — that will provide an allowance for eligible costs with a corres