The Saskatchewan government plans to trim part of its tax on potash production in a bid to lure more corporate office jobs to the province from the potash sector.
Starting Jan. 1, 2010, a deduction in determining the profit tax portion of its Potash Production Tax is to apply to each new corporate office job located in the province. Positions already located in Saskatchewan will count for lesser deductions.
After five years, each new job would be treated as an existing job, the province said in a release Thursday.
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“The net effect is expected to be an increased corporate presence in Saskatchewan for one of its key resource industries,” Energy and Resources Minister Bill Boyd said.
The province aims to demonstrate that “this is a good place to be for all phases of your operation, not just primary production,” he said.
The cost of the incentive in foregone tax revenue should be offset by revenue generated through job creation, the province said.
Three potash companies currently operate mines in the province. Planned expansions to existing mines are expected to mean an additional $9.4 billion in investment by 2020. A number of other companies are also exploring the possibility of developing new mines.
Three companies — Minneapolis-based Mosaic, Calgary’s Agrium and Saskatoon’s PotashCorp — operate 10 mines in Saskatchewan. The potash sector overall employs about 6,000 people in the province, the government noted.
Planned expansions to existing mines are expected to mean an additional $9.4 billion in investment by 2020, while other companies are also exploring the possibility of developing new mines, the province said.
“Despite the cooling-off in sales in 2009, the various expansion plans show the industry remains committed to the province,” Boyd said. “We want to see all phases of their operations here.”
Starting in 2010, a “base” job figure would be established based on the number of corporate office jobs a potash company has in Saskatchewan. The deduction from income in the calculation of operating profits would equal $100,000 per year for each new corporate office job, and $25,000 per year for each existing corporate office job.
After five years of receiving the $100,000 deduction, each new corporate office job would be treated as an existing job at the $25,000 deduction level.
Tax floor
The province’s decision follows a move Nov. 20 to change the potash production tax to ensure a “level playing field” for both new and existing potash firms.
In August 2003, the government eliminated profit tax on new potash sales above average sales levels from 2001 and 2002. Potash producers were able to reduce their effective profit tax rates by expanding their sales beyond their 2001-02 levels.
Without a change to that policy, a new potash player would essentially get a zero per cent profit tax rate because its production would all have been in excess of its non-existent 2001-02 production.
Thus, effective Jan. 1, 2010, a new company entering Saskatchewan’s potash industry will be assigned a tax base equal to 75 per cent of its sales up to one million tonnes of potassium oxide.
Once that base level of sales is reached, the company will be able to further expand its sales without increasing its taxable tonnes, thus providing the company with similar treatment to that afforded existing producers in 2003.
Also on Jan. 1, all potash producers will be subject to a tax floor equal to 35 per cent of their total sales. “The tax floor will ensure that regardless of growth, a base level of sales for all producers is subject to profit tax,” the province said.
Lower revenues
The province, in its mid-year budget report on Nov. 19, cut its expectations for tax revenue from potash sales to $109 million, down roughly $1.8 billion from its previously budgeted level. It offset the lower revenue through a combination of spending cuts and deferrals plus increased revenues from oil, federal transfers and taxes.
The province also benefited from lower-than-expected spending in several departments. Saskatchewan’s agriculture ministry, for one, has so far come in $40.1 million under budget, primarily due to lower-than-expected costs for its Crown Land Incentive, crop insurance and AgriInvest programs.
Saskatchewan’s potash sector in 2009 has seen its lowest sales volume levels since 1972, as farmers had balked at paying the prices the sector until recently commanded.
