Summary#
This bill creates a federal corporate income tax credit to encourage oil and gas well closure and site restoration. It applies to smaller producers and covers work done during 2020–2025. It also requires the Minister of Finance to report to Parliament on other tax tools, such as flow‑through shares, that could increase private funding for well cleanup.
- Creates a credit equal to a defined tax rate factor (the “general rate reduction percentage”) times eligible closure expenses (Bill, Closure of oil or gas well tax credit (2); Income Tax Act s.123.4(1)).
- Limits eligibility to “qualifying corporations” that produce under 100,000 barrels of oil equivalent per day in the tax year (Bill, Definitions (1)).
- Defines “closure” to include plugging/capping, dismantling surface equipment, and restoring the surface to its previous condition in line with federal or provincial laws (Bill, Definitions (1)).
- Applies to expenses incurred after 2019 and before 2026 (that is, 2020–2025) (Bill, Application period (2)).
- Orders a report, within one year of coming into force, on whether tax incentives, including flow‑through shares, would increase private funds, cut orphan‑well risk, and promote safe closure; the report must be tabled in both Houses (Bill, Report to Parliament (1)–(2)).
What it means for you#
- Households
- No direct tax change for individuals. Any benefits are indirect, such as fewer leaking or unsightly wells if cleanup increases. Scale of impact: Data unavailable.
- Workers
- Oilfield service workers may see more cleanup work if companies increase closure activity during 2020–2025. Actual job effects depend on company take‑up. Data unavailable.
- Businesses
- Qualifying oil and gas corporations: Can deduct from Part I tax an amount equal to the corporation’s “general rate reduction percentage” multiplied by eligible closure expenses in that tax year (Bill, Closure credit (2); Income Tax Act s.123.4(1)).
- Eligibility: Must own wells in Canada and have average daily production under 100,000 barrels of oil equivalent in that tax year (Bill, Definitions (1)).
- Eligible work: Plugging/capping wells, dismantling surface structures and related infrastructure, and restoring the surface, done in line with federal or provincial requirements (Bill, Definitions (1)).
- Timing: Only expenses incurred in 2020–2025 qualify (Bill, Application period (2)).
- Administration: The credit reduces “tax otherwise payable.” The bill does not provide refundability or carry‑forward rules; it is silent on caps per well or per firm (Bill, Closure credit (2)).
- Oilfield service companies: May see higher demand for closure and reclamation services if clients increase spending. Data unavailable.
- Local and provincial governments
- Possible reduction in future orphan wells if earlier closures occur, easing environmental and safety risks borne by provinces. The bill does not fund existing orphan wells because a claimant must own the well (Bill, Definitions (1); Closure credit (2)).
Expenses#
Estimated net cost: Data unavailable. Open‑ended federal tax expenditure tied to eligible corporate spending during 2020–2025.
- No official fiscal note identified. Data unavailable.
- Credit formula: General rate reduction percentage × eligible closure expenses, claimed against Part I tax (Bill, Closure credit (2); Income Tax Act s.123.4(1)).
- Scope controls in bill:
- Eligible claimants: Corporations producing under 100,000 barrels of oil equivalent per day (Bill, Definitions (1)).
- Eligible period: Expenses incurred after 2019 and before 2026 (Bill, Application period (2)).
- Eligible activities: Plug/cap, dismantle, and surface restoration in compliance with law (Bill, Definitions (1)).
- Absent from bill: Aggregate cap, per‑taxpayer cap, refundability, carry‑forward/back, or an appropriation for administration (Bill, text silent).
- Reporting mandate: Requires a ministerial assessment and tabling of a report; no specific cost is stated (Bill, Report to Parliament (1)–(2)).
Proponents' View#
- Lowers after‑tax cost of cleanup for smaller producers, which could accelerate closure of inactive wells by making each dollar of spending go further (Bill, Closure credit (2)).
- Targets small and mid‑size firms by excluding producers above 100,000 barrels of oil equivalent per day (Bill, Definitions (1)).
- Ensures environmental standards by tying eligible work to federal or provincial requirements for plugging, dismantling, and surface restoration (Bill, Definitions (1)).
- Uses a tax credit rather than grants, so federal spending rises only when companies perform eligible closure work; no upfront outlay is required (Bill, Closure credit (2)).
- Requires a study of flow‑through shares and other tax tools to mobilize private capital, reduce orphan‑well risk, and promote safe closures, with accountability via a tabled report (Bill, Report to Parliament (1)–(2)).
Opponents' View#
- Subsidizes costs companies may already be required to bear under existing laws; the bill does not restrict claims to closures beyond legal obligations (Bill, Definitions (1)).
- Open‑ended fiscal exposure: No cap on total credits or per‑taxpayer claims; total federal revenue loss is unknown (Bill, text silent on caps).
- No “additionality” test: The bill does not require proof that the credit causes earlier or extra closures versus business‑as‑usual plans (Bill, Closure credit (2); text silent).
- Administrative risk: The Canada Revenue Agency would need to verify that claimed work met federal or provincial closure standards, which could be complex and contested (Bill, Definitions (1)).
- Limited reach on orphan wells: Credits apply only when a corporation still owns the well; they do not fund cleanup of already orphaned sites (Bill, Definitions (1); Closure credit (2)).
- Distributional concerns: Benefits would flow mainly to regions with many oil and gas wells; the bill sets no regional guardrails (Bill, text silent).