+ RMA Rural Municipalities
of Alberta

Resolution 29-02F

Linear Assessment - Depreciation on Wells and Pipelines

January 1, 2002
Expiry Date:
December 1, 2005
Active Status:
Vote Results:

WHEREAS the application of depreciation on wells and pipeline assessment related to “non-producing wells” and “abandoned wells” (and associated pipelines) has recently been challenged by various linear property holders; AND WHEREAS the Municipal Government Board has recently upheld this challenge;AND WHEREAS the ruling handed down by the Municipal Government Board, and the interpretations upon which this ruling is based, have the potential to substantially reduce the assessment base of some municipalities;AND WHEREAS the MGB ruling has the further effect of removing an effective incentive for pipeline companies to properly abandon their pipelines at the appropriate time;

Operative Clause:

THEREFORE BE IT RESOLVED that the Alberta Association of Municipal Districts and Counties urge the Government of Alberta to make any amendments necessary to legislation, regulations and guidelines to ensure that these documents very clearly authorize the current practice of applying different levels of depreciation to pipelines, depending upon whether they are attached to “non-producing” wells or to “abandoned” wells.

Member Background:

MGB Order 173/01, issued December 11, 2001, decided an appeal initiated by a number of companies for tax year 2000, affecting a number of municipalities.The authority for and matters relating to the assessment of linear property all comes from the Municipal Government Act (MGA), the Matters Relating to Taxation Regulation and the Minister’s Guidelines on Assessment and Taxation. In determining linear assessment (well & pipeline), provincial assessors previously relied on the self-reported information provided by the companies. This changed a few years ago and now provincial assessors use information obtained from the EUB. There are three classifications for wells: Producing Non-producing (eg., capped) Abandoned (reclaimed, removed)A non-producing well (eg., a well that has been capped) as reported to the EUB is assessed at 10% of its production value. Any pipeline ttached to a non-producing well receives the same depreciation. An abandoned well as reported to the EUB would get a zero assessment the year following abandonment. Any pipeline attached to an abandoned well remains 100% assessable until it is also abandoned or discontinued (purged, capped, made leak-proof), after which it also would be zero assessed or if discontinued, assessed at 10%. The companies are arguing that pipelines attached to an abandoned well should get the same rating as pipelines attached to a non-producing well. The Department has suggested to several companies that if such is the case, they should abandon or discontinue those lines and report them accordingly to the EUB, which would result in their assessment being adjusted. The companies are hesitant to do so because of the cost in abandoning the pipeline (purging, etc.). As such, they appealed the assessment to the MGB instead.The MGB took a different view than the Department and allowed the depreciation on the pipeline attached to the abandoned wells. The MGB decision stated that non-producing wells and abandoned wells (and associated pipelines) should be treated the same for assessment purposes. This description represents a simplification of the decision, but provides an overview of the results of the MGB decision. The Department advises that it has appealed the MGB decision to the Court of Queen’s Bench and that it anticipates there will be a review in October 2002. It should be noted that the same parties who were successful with their appeal to the MGB (as well as others) have also appealed to the MGB regarding similar assessments for the 2001 and 2002 tax years.Department personnel have indicated that they have requested that the policy be modified so that that there is no ambiguity in terminology.It is suggested that the AAMD&C provide its support for the policy revision.

RMA Background:

The AAMDC has no resolutions currently in effect with respect to this matter.

Provincial Ministries:
Municipal Affairs
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