Freehold Mineral Tax is levied on an annual basis in February of the year following the production year against the mineral certificate of title owners covering a portion of the land in the spacing unit of the production entity (PE). The tax is calculated on calendar year petroleum and/or natural gas production figures filed with the ERCB.
The tax formula used takes into consideration the amount of production, the hours of production, value of each unit of production (Unit Value), the tax rate, the percentages that the owners hold in the title and the percentages that the title and well(s) hold in the production entities being taxed.
Companies that hold lease agreements with the freehold mineral rights owners or that have an interest by virtue of an interest in the multiple well production entity agreement covering the freehold lands submit unit values and receive a copy of the mineral tax statement. This enables for a fair assessment and the information is delivered to all parties which will include the payer of the tax. Alternatively, companies can use the default price for oil and gas supplied by the Crown if they do not wish to file price information.
A normal oil spacing unit of a quarter section or a smaller special spacing unit as designated by the ERCB is used to calculate the percentage taxed for oil on each title-owner’s statement. For example, if one quarter section spacing exists for oil and your title covers one legal subdivision, the portion of the spacing for that title will be twenty-five percent.
A normal natural gas spacing unit of one section or a smaller special spacing unit as designated by the ERCB is used to calculate the percentage taxed for natural gas production entities on each title-owner’s statement. For example, if one section spacing exists for gas and your title covers one quarter section, the portion of the spacing for that title will be twenty-five percent.
Values per unit of production (Unit Values) are used to determine a fair unique tax assessment for each production entity on each statement. The basic formula is: Revenue less Allowable Costs equals Net Revenue divided by Wellhead Production equals the Unit Value. If companies do not wish to file individual unit values, a default price will be supplied by the Crown. For further information on the calculation of Unit Values refer to Freehold Mineral Tax Unit Value Guides for the appropriate taxation year.
The tax rates are .269 for oil and/or field condensate and .069 for gas and/or solution gas with reductions for low productivity wells. The first $1,600 of tax calculated on each of gas and oil is exempt from tax payment.
Ensuring that we receive the payment of tax by the legislated date of March 25 in the year following the production year is the responsibility of the registered freehold owner. The registered owner is on record at the Alberta Land Titles office. Most lease agreements contain a payment of tax clause that transfers the tax payment obligations to the lessee of the mineral rights. Each private lease agreement with each freehold owner will have unique clauses and it is recommended that you refer to that current lease agreement to determine payment responsibilities.
In the event that the tax is not paid on or before the due date of March 25 in the year following the end of the production year, Freehold Mineral Tax will first contact the lessee(s) with an established linkage. If no arrangements are made to pay the tax, Freehold Mineral Tax will then contact the registered freehold owner(s) of the title(s) taxed. If payment in full is not received on or before 90 days after the due date an account statement will be mailed to the registered freehold owner.
Tax statements can be amended before the statute barred deadline. This timeframe includes any time on or before the December 31 of the fourth year following the end of the production year. Amendments are usually due to new or corrected information and can be the result of well status changes or corrections to the spacing unit due to pool code changes etc., enlargement of the area that the multiple well production entity covers, filing of wells production information, unit value calculation errors or omissions and certificates of title and their owners.