Environment Minister Peter Kent broke the news on his return from talks in Durban, where countries agreed to extend Kyoto for five years and hammer out a new deal forcing all big polluters for the first time to limit greenhouse gas emissions.
Canada, a major energy producer which critics complain is becoming a climate renegade, has long complained Kyoto is unworkable precisely because it excludes so many significant emitters.
"As we've said, Kyoto for Canada is in the past ... We are invoking our legal right to formally withdraw from Kyoto," Kent told reporters.
The right-of-center Conservative government of Prime Minister Stephen Harper, which has close ties to the energy sector, says Canada would be subject to penalties equivalent to C$14 billion ($13.6 billion) under the terms of the treaty for not cutting emissions by the required amount by 2012.
"To meet the targets under Kyoto for 2012 would be the equivalent of either removing every car truck, all-terrain vehicle, tractor, ambulance, police car and vehicle off every kind of Canadian road," said Kent.
Environmentalists quickly blasted Kent for his comments.
"It's a national disgrace. Prime Minister Harper just spat in the faces of people around the world for whom climate change is increasingly a life and death issue," said Graham Saul of Climate Action Network Canada.
Kent did not give details on when Ottawa would pull out of a treaty he said could not work. Canada kept quiet during the Durban talks so as not to be a distraction, he added.
"The writing on the wall for Kyoto has been recognized by even those countries which are engaging in a second commitment," he said. Kyoto's first phase was due to expire at the end of 2012 but has now been extended until 2017.
The Conservatives took power in 2006 and quickly made clear they would not stick to Canada's Kyoto commitments on the grounds it would cripple the economy and the energy sector.
The announcement will do little to help Canada's international reputation. Green groups awarded the country their Fossil of the Year award for its performance in Durban.
"Our government is abdicating its international responsibilities. It's like where the kid in school who knows he's going to fail the class, so he drops it before that happens," said Megan Leslie of the opposition New Democrats.
The Canadian Association of Petroleum Producers (CAPP) said all major emitters had to agree to cuts so that Canada did not put itself at a disadvantage.
Canada's former Liberal government signed up to Kyoto, which dictated a cut in emissions to 6 percent below 1990 levels by 2012. By 2009 emissions were 17 percent above the 1990 levels, in part because of the expanding tar sands development.
Kent said the Liberals should not have signed up to a treaty they had no intention of respecting.
The Conservatives say emissions should fall by 17 percent of 2005 levels by 2020, a target that CAPP president David Collyer said would oblige the energy sector to make sacrifices.
"It's a stretch and we'd be kidding ourselves if we said it wasn't," he told Reuters.