First Taxation Year

When you file your first LNG income tax return, you may elect to include certain qualifying expenditures you incurred, or qualifying property you acquired, prior to your first taxation year.

Examples of some of these costs would be:

  • Site clearing and preparation
  • Engineering
  • Equipment purchases
  • Land acquisitions

Qualifying Expenditures

Qualifying expenditures can be included in your net operating loss account for your first taxation year if the expenditure:

  • Was made for the purpose of gaining or producing income from liquefaction activities
  • Was incurred before the start of your first taxation year
  • Would have been deductible in calculating your net operating income had it been incurred in your first taxation year

However, qualifying expenditures that also increase the value of your qualifying property can be claimed only once. This means if you include an expenditure in your net operating loss account, you must also deduct the amount of the expenditure from the fair market value of the qualifying property.

Qualifying Property

Qualifying property can be included in your capital investment account for your first taxation year if the property:

  • Is capital investment property
  • Was owned or acquired immediately before the start of your first taxation year

Qualifying property can be included at either:

  • The fair market value of the qualifying property, or
  • The capital cost of the qualifying property

Fair Market Value:  If you elect to include the fair market value of the qualifying property in your capital investment account, you must then deduct, from your capital investment account, any amounts you included as qualifying expenditures in your net operating loss account.

Capital Cost:  If you elect to include the capital cost of the qualifying property, you can’t include any cost that would have been deductible in calculating your net operating income or loss. You must deduct any amount you received as a financial incentive relating to the property prior to the first taxation year.

File Your Election

You must file an election to include qualifying expenditures or qualifying property when you file your LNG income tax return for your first taxation year. An election filed after 18 months from the end of your first taxation year won’t be accepted.

Any expenditures or property you don’t elect to include in your first tax return can’t be included on any future returns.

You must be able to provide records for any expenditures or property you include in your election.

Amalgamations

A new corporation that is a result of an amalgamation doesn’t qualify for a first taxation year election.