Canada Revenue Agency accepts letter of credit from Sask. while court rules on carbon levy

Saskatchewan’s justice minister is celebrating a minor victory in her dispute with the federal tax agency over the carbon levy on home heating.

In a statement on Tuesday morning, Attorney General Bronwyn Eyre announced the Canada Revenue Agency (CRA) had agreed to accept a letter of credit for the money Saskatchewan owes since it stopped collecting carbon tax on home heating in January.

“We stopped them. The Government of Saskatchewan has been successful in preventing the federal government from its unconstitutional attempt to grab money out of Saskatchewan’s bank account,” Eyre said in the statement.

In late June, the CRA issued an order to the Royal Bank of Canada seeking $28 million from the province's account, about half of the money the agency assessed as owing for January to April, 2024.

The province filed an injunction against the order soon after, calling it unconstitutional for a federal agency to garnish a provincial government's account.

Now, with this deal, the CRA walks away with a framework in place to potentially recoup its losses. The province didn’t exactly get off scot-free.

“This 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,” said Marie-Claude Bibeau, national revenue minister.

According to a provincial government spokesperson, the letter of credit is essentially a security representing a promise to pay if they lose their case in tax court.

“Saskatchewan has offered to establish a letter of credit, which is common practice for companies and other large entities and explicitly provided for under the federal carbon tax legislation,” Eyre said.

“It will remain in place until our dispute is determined by the Tax Court of Canada.”

If the court rules in favour of the CRA, Bibeau says the province has agreed to settle future outstanding payments the same way.

“Saskatchewan has committed to secure future outstanding amounts in the same agreed-upon manner. While some outstanding amounts remain to be paid under the GGPPA, this agreement complies with the law and aligns with the CRA’s standard practices.”

Saskatchewan Premier Scott Moe called the deal a victory on Tuesday, since it keeps the CRA from forcefully garnishing the province’s consolidated revenue fund.

“Should we find a negotiated settlement through this? And we said, ‘Most certainly, but that negotiated settlement would include you not garnishing or taking dollars out of the provincial bank account, which is constitutionally just not on,’” Moe told reporters in Halifax on Tuesday as the premiers gathered for summer meetings. 

Moe maintains the carbon tax is a primary driver of inflation, although a number of economists have disputed that claim as facile.

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The province first announced it would stop paying the carbon tax on home heating in October, in retaliation to the federal government decision to grant a three-year exemption to the tax for those who used heating oil in their homes — primarily benefiting Atlantic Canada.

The province says the move was politically motivated and believes it’s unfair that other forms of home heating aren’t exempt.

Eyre said her arguments are framed by three points — fair application of law, no regional favouritism and minimum national standards.

When asked about the dispute in April, Prime Minister Justin Trudeau stood by the exemption on home heating oil, which is much more expensive than natural gas — the main source of heating fuel in Saskatchewan.

At the time, he wasn’t worried about the loss of revenue.

Trudeau said the CRA is “very, very good” at getting money owed and he wished the province “good luck” in dealing with it.

-With files from Colton Praill