Sask. says $28M in carbon tax money is 'safe for now' after striking deal with Ottawa
Province has offered to establish a letter of credit for half of what is owed as Tax Court of Canada works
Saskatchewan Justice Minister Bronwyn Eyre says the province's bank account is "safe for now" thanks to an agreement with the federal government in the ongoing dispute over the federal carbon tax.
In a release, she wrote that the province had offered to establish a letter of credit, calling it a "common practice for companies and other large entities and explicitly provided for under the federal carbon tax legislation."
The letter of credit will remain in place until the dispute is settled by the Tax Court of Canada, though it's not yet clear when that proceeding will begin.
According to documents filed with federal court, the Canada Revenue Agency believes that as of the end of April, the government of Saskatchewan owed $56 million for failing to collect and remit part of the carbon levy to Ottawa.
Earlier this month, the Canada Revenue Agency tried to take half that amount from Saskatchewan, prompting a legal challenge from the province.
That challenge was shelved last week as the two sides negotiated behind the scenes, resulting in Tuesday's agreement.
Deal returns Sask. to 'holding pattern'
A letter of credit is a financial contract that guarantees payment if the conditions of the letter are met.
Eyre said the new agreement returns the province to a "holding pattern" while it waits for the tax court to weigh in.
Saskatchewan's money is "safe for now," Eyre continued.
"The attempt a week ago was by the federal government to go into a provincial bank account and take the money, and they cannot do that constitutionally," she said.
In a statement Tuesday, federal National Revenue Minister Marie-Claude Bibeau wrote that the agreement "secures 50 per cent of the outstanding amounts under the Greenhouse Gas Pollution Pricing Act until the full resolution of the dispute, in line with legal requirements."
In her statement, Bibeau says Ottawa remains committed to enforcing the Greenhouse Gas Pollution Pricing Act.
"Our government remains committed to upholding this significant legislation that propels us toward a more sustainable future," she wrote.
WATCH | What to know about the carbon tax lawsuit between Saskatchewan and Ottawa:
Sask. stopped collecting tax in January
The conflict between the two levels of government began nearly a year ago, when Saskatchewan Premier Scott Moe announced his plan to stop collecting the carbon tax on natural gas beginning in January 2024.
Moe argued that Ottawa was being unfair by offering an tax exemption to home heating oil — used primarily in the Atlantic provinces — but not natural gas.
Moe addressed the latest developments on Tuesday while in Halifax, where premiers are holding their annual summer meetings.
Moe said he looks forward to "actually having the … case heading toward the tax courts. Which is what should be happening in this case."
WATCH | Moe says Sask. looks forward to carbon tax case being heard in tax court:
The dispute between the two levels of government heated up in early July when Saskatchewan filed a lawsuit in federal court, attempting to stop the CRA from collecting the $28 million it said Saskatchewan owed for failing to collect and remit part of the tax.
This past Friday, a federal court hearing scheduled to hear Saskatchewan's arguments was abruptly cancelled, and the two sides indicated they were negotiating a resolution.
Eyre's release describing the new arrangement came four days later.
Eyre wrote in her release that the Saskatchewan government will continue to provide the same carbon tax exemption on home heating and will continue to make the same arguments against "regional favouritism."
"That exemption will remain in place until this federal government, or the next one, does the right thing and gets rid of the carbon tax on everyone and everything," she wrote.
'Strategically, this makes a lot of sense for both parties': tax expert
Rory Gillis, a law professor at Western University in Ontario who specializes in tax law, says he can see why both levels of government would want to make this kind of agreement.
"Strategically, this makes a lot of sense for both parties," he said.
He explained that prior to Tuesday's deal, Saskatchewan was pursuing two different legal claims: first, that the application of the federal carbon tax was unconstitutional, and second, that the CRA's attempt to reach into the province's bank account (also known as garnishment) was unconstitutional.
The agreement allows both sides to abandon the second claim, which Gillis says would have been a "tricky constitutional question."
"There's no case law on it," he said. "It could take a long time to resolve in court."
Instead, both Saskatchewan and Ottawa can move on to the more pressing issue of the carbon tax itself — though it's not yet clear when that will be addressed in the Tax Court of Canada.
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