Calculate Your LNG Net Operating Income

Your LNG net operating income or loss is based on your profit or loss from your liquefaction activities at an LNG facility.

If you don’t have net income, you pay 1.5% tax on your net operating income from your liquefaction activities. If your net operating income is calculated as zero, you don’t pay the 1.5% LNG income tax. You may have a net operating loss that can be added to your net operating loss account for subsequent taxation years.

Any tax you pay at the 1.5% rate is accumulated in a tax pool and is used to reduce the tax you pay at the 3.5% or 5% rate once your net operating loss account and capital investment account are reduced to zero.

Partnerships

Partnerships engaged in liquefaction activities don't calculate net operating income or loss at the partnership level. Amounts used to calculate each partner's net operating income or loss, such as income or loss from business or property and specific deductions, are calculated by the partnership and then allocated to the partners.

Calculate Net Operating Income or Loss

When you calculate your net operating income or loss from liquefaction activities at a single LNG facility, include:

Income or loss from liquefaction activities doesn’t include:

  • Interest income, employment income, capital gains or losses, or income or expenses relating to hedging transactions
  • Deductions for capital cost allowance
  • Deductions for financing charges

To calculate your net operating income or loss from liquefaction activities at an LNG facility:

  1. Calculate the sum of income from business or property
  2. Add income from other sources
  3. Subtract specific deductions in certain circumstances
  4. Subtotal (if the resulting amount at this step is negative, the calculation is set to zero)
  5. Subtract the sum of losses from business or property
  6. Subtract your investment allowance

If the resulting amount is:

  • Positive, it is your net operating income from your liquefaction activities at the LNG facility
  • Negative, it is a net operating loss from your liquefaction activities at the LNG facility, so your net operating income is considered zero

    The negative amount is added to your net operating loss account and may be used to offset net income in future tax years.

Calculation Examples

Example 1

You have the following:

  • Income from business or property = $1,000
  • Specific deductions in certain circumstances = $25
  • Investment allowance = $400

Your calculation is:

Income from business or property: $1,000
Subtract: Specific deductions (25)
Subtotal (can't be less than $0) $975
Subtract: Investment allowance: (400)
Net operating income: $575
Net operating loss: $0

Your net operating income is $575.

Example 2

You have the following:

  • Income from business or property = $500
  • Income from other sources = $300
  • Losses from partnership A's business or property = $500
  • Investment allowance = $400

Your calculation is:

Income from business or property: $500
Add: Income from other sources: 300
Subtotal (can't be less than $0) $800
Subtract: Loss from partnership A: (500)
Subtract: Investment allowance: (400)
Net operating income: 0
Net operating loss: $(100)

Your net operating income is zero and your net operating loss is $100. You add $100 to your net operating loss account.

Example 3

You have the following:

  • Income from partnership A's business or property = $100
  • Income from other sources = $300
  • Specific deductions in certain circumstances = $600
  • Losses from business or property = $400
  • Losses from partnership B's business or property = $100
  • Investment allowance = $400

Your calculation is:

Income from partnership A: $100
Add: Income from other sources: 300
Subtract: Specific deductions: (600)
Subtotal (can't be less than $0) $0
Subtract: Loss from business or property: (400)
Subtract: Loss from partnership B: (100)
Subtract: Investment allowance: (400)
Net operating income: 0
Net operating loss: $(900)

Your net operating income is zero and your net operating loss is $900. You add $900 to your net operating loss account.