The Canadian province of Saskatchewan has employed a letter of credit (L/C) to forestall the Canada Revenue Agency's (CRA's) efforts to reclaim C$56 million (US$41 million) in federal carbon tax.

The CRA claims that the government of Saskatchewan owes this amount for not collecting and remitting a portion of the carbon levy to Ottawa. The province disputes this claim and a court will decide how much, if any, money Saskatchewan owes in federal carbon tax.

L/C guarantee

The L/C guarantees the CRA will be paid once conditions in the agreement between the province and the tax authority have been met.

The key condition is that Saskatchewan will pay the amount of federal carbon tax the court decides is owed by the province to the federal tax collector.

Safe for now

The province's justice minister and attorney general Bronwyn Eyre commented that under the agreement the province's bank account is "safe for now" and that the L/C will remain in effect until the dispute is resolved by the tax court of Canada.

"Saskatchewan has offered to establish a L/C, which is common practice for companies and other large entities and explicitly provided for under the federal carbon tax legislation," said Eyre in a written statement.

Federal government 'unconstitutional'

Earlier this month, the CRA tried to withdraw half of the owed amount from Saskatchewan, which prompted the province to press for the L/C agreement.

"The federal government's...attempt to access a provincial bank account and take the money was unconstitutional, and they cannot do that," Eyre concluded.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.