Mining-Specific Tax Provisions in Canada
Canada’s federal and provincial tax laws offer rates of income tax that are low relative to most other countries in which mining activities take place. Most provinces also have sales and use taxes that allow businesses to pass along the tax to the consumer.
Mining-specific tax incentives to encourage investment in the mining industry include:
Provincial and Territorial Mining Taxes and Royalties Deduction
Mining taxes and royalties paid to a province or a territory with regards to income from a mineral resource are fully deductible when calculating income for federal income tax purposes. Most provinces impose a profit tax instead of royalties on mining operations.
Capital Cost Allowances
Most capital assets qualify for a depreciation rate of 25 percent on a declining balance basis. Government grants and investment tax credits, plus proceeds sold assets (not exceeding the acquisition cost) are deducted.
Accelerated Capital Cost Allowances (ACCA)
ACCA can give a depreciation allowance of up to 100 percent of the asset cost if bought before the start of commercial production or major expansions, or for the portion of investment expenditures in excess of 5 percent of the gross income. ACCAs for mining are being phased out over 2017-2020.
Canadian exploration expenses (CEEs)
These are expenses incurred by the corporation for determining the existence, location, extent, or quality of a mineral resource in Canada. Until 2018, CEEs also include some expenses involved in bringing a new mine into production.
Tax credits for intangible expenses can be carried forward for a period of 20 years. Operating losses can be carried forward for 20 years.
Foreign Resource Expenses (FRE)
The basic FRE deduction for each country ranges between 10 percent and 30 percent of the cumulative FRE balance for that country. FRE and Foreign Exploration and Development Expense (FEDE) have date restrictions including:
- Exploration and development expenses incurred in searching for minerals outside Canada
- The cost of acquiring foreign resource properties
- Annual foreign lease rental payments
- The “at risk” portion of the corporation’s share of any of the above expenses from a partnership.
Canadian Development Expenses (CDE)
CDEs can be deducted at a 30 percent declining balance for work including creation of a mine shaft, main haulage way, or similar underground work for a mine in Canada built or excavated after the mine came into production, pre-production mine development expenses (after 2017) and the cost of any Canadian mineral property
Qualifying Environmental Trusts (QET)
Contributions to qualifying mine reclamation trusts can be deducted in the year in which they occurred for income tax purpose.
Flow-Through Shares (FTS)
These allow corporations to obtain financing for expenditures on mineral exploration and development in Canada. The advantages for the investor are a hundred percent tax deduction for the amount they invest in the shares, plus a fifteen percent tax credit in the case of an eligible expense and an investment appreciate if the exploration is successful.
Mineral Exploration Tax Credit
Expired March 2016