Canada’s mining industry liked the extension of both the Mineral Exploration Tax Credit and the super-ﬂow-through share provision in the 2013 federal budget. Both measures were seen to positively assist financing and exploration efforts and were regarded as key to addressing Canada’s declining base metal reserves.
However, according to the Mining Association of Canada’s recently published Facts & Figures 2013 report, other recent federal mining tax reforms will make it more costly for companies to both develop projects and operate – particularly in remote and northern regions – and may push investment to more competitive jurisdictions.
The report points out that the 2012 and 2013 federal budgets indicated a trend in reduced government tax support to the Canadian mining industry through a range of measures including:
- the elimination of the corporate Mineral Exploration and Development Tax Credit;
- the elimination of the Atlantic Investment Tax Credit for resources;
- the elimination of the Accelerated Cost of Capital Allowance;
- The reduction of the Scientiﬁc Research and Experimental Development Tax Incentive Program;
- The unintended consequences of the foreign affiliate dumping rules; and
- The rendering of pre-production expenses ineligible for Canadian Exploration Expenses deductions.
“On the backdrop of a volatile commodities market, and given the already heightened level of remote and northern exploration, development and operational costs, these measures will undoubtedly tip the balance of some projects, rendering them economically unviable,” says the report.
It points out that because any reduction in mining and mineral-related investment will be associated with a reduction in regional and national social and economic beneﬁts, these tax reforms will arguably make it more difficult for government to achieve certain stated policy objectives.
“Given the federal government’s publicly stated policy objectives for Canada’s North and Arctic, it is important to assess the full extent of the impact that these reforms will have not just for Canada, but for remote and northern social and economic development especially,” notes the report.
David Stevens, a partner and tax lawyer in the Toronto office of the law firm Gowlings, says by reducing tax support for the mining industry, the government is furthering its objective to establish a comprehensive, low rate, corporate tax system.
“To the extent that they’re going to encourage corporations to invest in mining, it is with low corporate tax rates,” he says. “They treat all corporations the same. So, an accelerated capital cost allowance is essentially a fiscal subsidy for a certain kind of investment.”
By removing the allowance, the government has effectively said that it will create an even playing field for investment across the board without favouring any specific sector.
“To a large extent, they’ve done that. If you look at Canada’s tax rates compared to the U.S., for example, they are quite good and should be attractive to most investors,” says Mr. Stevens. “However, eliminating the accelerated capital cost allowance in a low commodity price environment is a tough hit for the mining industry.”
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“According to the Mining Industry Human Resources Council (MiHR), the Canadian mining industry will require 145,000 workers over the next decade. This deﬁcit is compounded by the approaching retirement of the industry’s skilled core of workers. By 2023, MiHR forecasts more than 67,000 employees will retire from the sector. As Canada’s largest proportional private sector employer of Aboriginal people, however, the industry is in a good position to broaden its relationship with this segment of Canadian workers if the right training and skills programs are developed and maintained. Approximately 1,200 Aboriginal communities are located within 200 kilometres of some 180 producing mines and more than 2,500 active exploration properties. Addressing the human resources challenge will take a large and coordinated effort by the industry, educational institutions and all levels of government in the coming years.”
Facts & Figures of the Canadian Mining Industry 2013 published by the Mining Association of Canada