Project
It involves the processing of residual solids from the McLoughlin Point Wastewater Treatment plant and others in the area, and turn into safe products that can be re-used for energy generation or as fertiliser.
It is part of a business case approved by the CRD that includes the McLoughlin Point Wastewater Treatment plant along with other upgrades to eventually divert untreated sewage currently discharged into the Strait of Juan de Fuca to a secondary treatment.
Resource Management Group, a consortium made up of Synagro Technologies, Bird Capital and Maple Reinders, was select as the preferred bidder in December 2017 and reached financial close in February 2018. Construction began in spring 2018, and operations started ahead of schedule in late 2020.
Operis Role
Operis acted as financial advisor to the consortium. The Tax and Accounting team provided comprehensive advice on the business structure’s tax implications and compliance with the correct accounting standards.
Corporate Income Tax (CIT) implications of business structure
The work undertaken by the Team included a review of the corporate income tax implications of the SPV being a general partnership and an analysis of the conditions that needed to be met for the partnership not to be a taxable entity for corporate income tax purposes.
The Team also set out how the various types of costs that were expected to be incurred by the SPV would be allowable for CIT purposes when calculating the tax due by the partners. This discussion included an explanation of the additions to and deductions from the Class 14 asset, timing of the Class 14 asset amortisation and the timing of CIT deductions for other costs.
Sales Tax
Due to the Project’s location, the SPV would be subject to both Provincial Sales Tax (PST) and Goods and Services Tax (GST). The Team set out:
- the likely PST and GST treatments of the forecast revenues receivable and costs payable by the SPV;
- the costs which were likely to be exempt from sales tax;
- the ability of the SPV to recover PST and GST, and the timing of any sales tax recovered;
- the GST treatment of any construction holdbacks; and
- the GST treatment at substantial completion.
Accounting Treatments
The Team needed to analyse whether the project was within the IFRIC 12 accounting standard scope under IFRS and, if so, which of the accounting treatments detailed within IFRIC 12 was appropriate.
Having analysed the appropriate accounting treatment to adopt, the Team explained how the expected financial asset accounting treatment should be adopted in the financial model, including indicating how appropriate margins on costs would be established.
The work also encompassed advising on the appropriate accounting treatment of other costs such as interest and fees, upfront costs and whether a provision for maintenance costs should be established.
