Tax Incentives Needed To Spur Canadian Electricity Investment

by Mike Godfrey, Tax-News.com, Washington

03 October 2003

The Canadian Electricity Association has called on the government to enact certain tax reforms that will encourage investment in Canada's ageing electrical supply infrastructure.

Appearing before the House of Commons Standing Committee on Finance this week, CEA president Hans Konow commented that "changes are essential so that we may be able to attract the investment needed to ensure system reliability and meet future demand."

One of Mr Konow's central recommendations to ensure that the industry meets a $150 billion investment requirement over the next decade is for the government to enact changes to the Capital Cost Allowance, so that it reflects the economic life of the assets. "Without appropriate CCA rates, it will be difficult to attract sufficient new investors into the market, build the necessary supply and transmission infrastructure, provide reliable power at affordable prices, and meet environmental performance expectations such as the Federal Government's climate change commitments" the CEA president explained.

Therefore, Konow is suggesting improvements in the CCA rates to 20% from the current 8% on new generation assets, and an increase to 12% from 4% on transmission and distribution assets.

"The electricity industry is the only sector that does not receive adequate tax treatment for used as well as new assets," the CEA announced in its pre-budget statement. "With virtually all of the industry’s assets trapped at a 4% rate companies cannot receive a 'fresh start' upon the transfer from a tax-exempt to a taxable entity which is a key issue for companies restructuring into a more competitive market," the report observed.

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