In this article, we will look at a number of tax and other developments in the mining sector, with a particular focus on Québec.
The flow-through share provisions of the Income Tax Act (Canada) (ITA) allow a corporation that incurs certain expenses, including "Canadian exploration expense" (CEE), to renounce such expenses to an investor who can deduct such expenses in computing income. In addition, certain CEE incurred in grass roots mineral exploration and renounced to an individual investor (other than a trust), will give rise toa 15 per cent non-refundable tax credit tothe investor.
The January 2009 federal budget has extended the eligibility period of the tax credit for mineral exploration. This tax credit, which was scheduled to expire on March 31, 2009, will be extended until March 31, 2010. Furthermore, in light of the look-back provisions of the ITA, funds raised with the benefit of the credit in 2010 can be spent on eligible exploration activity until the end of 2011.
According to the Fraser Institute’s 2008/2009 Survey of Mining Companies, Québec stands as the most attractive jurisdiction in the world for its mining policies. According to the survey, Québec has been in the top 10 jurisdictions since 2001, and was considered the most attractive jurisdiction for its mining policies in both 2007 and 2008.
The 2009-2010 Québec budget announced in March 2009 provides for the extension to the forestry and mining sectors of the refundable tax credit for manpower training introduced in 2009 for the manufacturing sector. The measure allows an eligible employer to claim a refundable tax credit for each eligible employee, equal to 30per cent of eligible training expenditures incurred regarding such eligible employeeduring a taxation year.
In addition, the Québec budget proposes to amend the Mining Duties Act (Québec) to allow certain corporations to report their profits or loss in a currency other than the Canadian dollar (functional currency), in harmony with the federal measures to allow certain corporations to determine their income, for income tax purposes, in the functional currency.
Québec’s attractiveness is partly due to its generous incentive program and flow-through share regime under the Taxation Act (Québec), which permits the renunciation to individual investors of an additional 25 per cent for CEE incurred in Québec and a supplementary 25 per cent for surface mining exploration expenses, for a total of 150 per cent, and the renunciation to corporate investors of an additional 25 per cent of exploration expenses incurred in the northern exploration zone. Moreover, provided that certain conditions are fulfilled, the Taxation Act (Québec) provides for a mechanism to exempt part of the taxable capital gain realized by or attributed to an individual (other than a trust) upon the sale of the flow-through shares.