In the fall of 2018, the federal government implemented their strategy for reducing carbon emissions by 50 to 60 million tonnes by 2022. In doing so, they enacted upon a charge of $20 per tonne in 2019, with an annual increase of $10 per tonne until it reaches $50 per tonne by 2022. This carbon pricing model will have an effect on both individuals and corporations in Saskatchewan.

The Saskatchewan view

In some jurisdictions, the impact of carbon pricing is budgeted to be neutral. Unfortunately, due to the nature of Saskatchewan’s economy, the government of the province predicts that the carbon tax will cause a $16 billion or 2.43% loss to the economy from 2022-2030. It is important to note that the Saskatchewan government has challenged the federal carbon tax imposed on family and businesses. At a later date, a decision will be made in court as to whether the constitutional challenge will be accepted or rejected.

Additional costs for everyone

The three main areas affected are the following:

Fuel Charge - Carbon tax will increase fuel prices by 4.4 cents/litre in 2019 to 11 cents/litre by 2022. The full list of fuel charge rates can be found here.

Natural gas - Costs will increase from 3.9 cents per cubic metre to 9.8 cents per cubic metre in 2022. This results in an average increase in heating costs for residential customers of 13% or $109 for the first year and an average annual increase of 6% or $53 over the next three years. For commercial customers, the average annual increase will be 17-21% in the first year with average annual increases of 10% over the next three years.

Electricity – Residential and commercial customers will see an increase of 2.7% for 2019 with steady increases over the remaining three years. For the average residential consumer, this works out to $18 for the first year, rising to $63 by 2022. Costs for commercial users will depend on power consumption and will steadily rise based on a similar ratio.

The fuel price increase will come into effect on April 1, 2019. The natural gas and electricity amounts will come into effect as a separate line item on your bill on April 1, 2019. The only difference is natural gas and electricity will be retroactive to January 1, 2019 and, therefore, the charges will be adjusted accordingly. The utility companies will collect the carbon tax along with the applicable GST on bills and remit this amount to the government annually based on their emissions.

Some other key information can be found at the following links:

https://www.saskatchewan.ca/government/federal-carbon-tax
https://www.saskpower.com/federalcarbontax
https://saskenergy.com/federalcarbontax/

Carbon tax rebate

The federal government estimates that 90% of the fuel charge will be returned to households through an annual tax rebate and 10% will go to support small businesses, universities, hospitals, etc., which will be worth roughly $445 million over the next five fiscal years. However, in Saskatchewan, this formula will not work, and the business sector will incur more costs than what will be rebated. For individuals, it is estimated that their additional costs will be somewhere close to the amounts rebated.

Saskatchewan is one of the four provinces who have opposed the federal carbon tax plan. As a result, consumers will receive personal tax rebates to subsidize paying the carbon tax effective April 1, 2019. This rebate will be received in the spring of 2019 when 2018 tax returns are filed and will be dependent on a person being a resident of Saskatchewan and over the age of 18. (People under 18 will qualify if they have a spouse or are a parent.) Residents in small and rural communities will benefit from an additional 10% supplement on top of the normal rebates. You can find out if you reside outside a metropolitan area and are eligible for the additional 10% here.

The following table will highlight what you can expect for personal tax rebates based on your personal tax situation. This will reduce your taxes payable or increase your refund when you file your 2018-2021 tax returns:

If you live outside the Regina or Saskatoon metropolitan area, there will be a checkbox on your tax return for eligibility to receive the additional 10% on the above amounts when filing your tax return. One thing to note is there will be one total claim per family when filing your taxes. For example, a family of four would receive a total amount of $609. You can learn how carbon pricing will work in Saskatchewan from a federal government perspective here. The government of Saskatchewan issued more realistic forecast titled “Impact of Carbon Tax on SK Households Fact Sheet.”

Impact on the economy as a whole

Virtually every material will see an increase in price, and each layer of the supply chain will attempt to pass these higher costs on to customers by marking up prices.

Impact on agriculture

Farmers are expected to see small direct carbon taxes, but there is no fuel charge for fuels used in tractors, trucks and other farm machinery. If fuel is used exclusively for farm machinery and all or substantially all of fuel is used in the course of eligible farming activities, farmers will not need to be registered for relief in this area.

Natural gas or propane used to dry grain or heat farm buildings is not exempt, nor is fuel used in the trucking of grain or livestock. In addition, there will be added costs for all indirect goods. In fact, our clients are already talking about their increased costs, which are identified in “Impact of Carbon Tax on SK Households Fact Sheet.” If the pesticide and fertilizer industry is able to fully pass costs back to producers, additional costs could range from roughly $2.80 per acre to $5.70 per acre, depending on the crop and soil zone.

Impact on industrial facilities

Large industries that emit more than 50,000 tonnes of carbon dioxide (including the power and natural gas companies) will abide by the federal output-based pricing system (OBPS). Proceeds from that program will be used to support initiatives to reduce greenhouse gas emissions in Saskatchewan. This is a system where carbon gas emissions above a threshold of industry greenhouse standards (80 or 90%) are charged $20 per tonne in 2019, increasing to $50 per tonne by 2022.

Other considerations

The new carbon pricing model will also impact users of aviation fuel in the territories, greenhouse operators, power plants that generate electricity for remote communities and indigenous peoples, The full details for relief in the above areas can be found here.

Hope for the best, prepare for the worst

It appears that the carbon tax will take dollars out of our local economies. Let’s hope that the new costs do not have a spiral effect on business investment and consumer confidence in Saskatchewan. We can also hope that the constitutional challenge will be accepted in court proceedings. For help preparing for the impact of the carbon tax, contact our Advisory Services department leader Evan Sharp, CPA at 306.242.4281 or ebsharp@bakertilly.ca.

This article was written with supporting research from Sunil Shah, CPA, CA, who brings additional perspective as a board member of the Yorkton Chamber of Commerce.

Meet the Author

Darcy Spilchen
Yorkton, Saskatchewan
D (306) 786-4567
E .(JavaScript must be enabled to view this email address)