Federal corporate tax change could increase electricity and gas bills for some Canadians

A proposed income tax change to crack down on cross-border tax evasion could unintentionally increase energy bills and natural gas rates for consumers, Electricity Canada warns.

If Canada adjusts the amount of debt interest that multinational companies can deduct from their income taxes, the advocacy group says, that could mean some private utilities face tens of millions in new taxes.

“If you limit the amount of interest that can be deducted, there is also an obligation to pass those costs on to customers,” said Michael Powell, the organization’s vice president of government relations.

The adjustment is part of the government’s bill to implement its fall economic statement, and comes as Finance Minister Chrystia Freeland attempts to better align Canada with international recommendations.

The Organization for Economic Co-operation and Development guidelines aim to prevent multinational corporations from transferring income or debt between jurisdictions to reduce their overall tax bills.

The OECD says it is not an uncommon practice.

Standardizing the amount of interest that can be deducted limits the benefits of such tactics and helps prevent tax evasion in developing countries that often rely heavily on higher corporate tax rates.

The Liberals’ Bill C-59, which is being debated in the House of Commons, sets out a new ratio that would restrict the amount of interest Canadian companies doing business in at least one other country can deduct.

This will also encompass several privately owned utilities, Powell said.

The federal tax change could increase electricity and gas bills in some provinces. #CDNPoli #IncomeTax

He said these utilities are heavily regulated, which for the most part already prevents them from taking major tax avoidance measures such as debt shifting.

But to keep rates low, they are also typically required to maintain high levels of debt, stretching out the costs of capital investments over long periods of time.

Powell said that because utilities do not have the ability to reduce their debt load, the legislation could create a significant imposition of new costs and, as a result, increase rates.

“Other jurisdictions, such as the United States, Ireland and the United Kingdom, have just exempted regulated utilities,” he said.

“Because it’s the neatest way to make sure that organizations that are doing sensible things aren’t punished. That’s not really what the rule change was intended to capture.”

The adjustment will not affect utility companies, such as Manitoba Hydro or SaskEnergy, which also means there will be uneven impacts on energy and gas rates depending on where people live.

Powell also said the change will limit investments that private utilities can make to expand the electric grid or invest in technology to reduce greenhouse gas emissions.

Freeland’s office has not yet responded to a request for comment.

At a meeting of the House of Commons finance committee last week, Conservative MP Philip Lawrence asked a departmental official what kind of consultation and study was carried out before the measure was included in the bill.

Lindsay Gwyer, managing director of Finance Canada’s tax law division, said extensive consultations were held.

Gwyer could not immediately provide details on how the economic impacts of the change were studied or what effect it might have on rates.

Lawrence said he was concerned the idea would increase costs for consumers “at a time when many Canadians are experiencing energy poverty.”

This report by The Canadian Press was first published March 5, 2024.

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