The Province of Québec has announced the details of a new mining tax regime. The new regime will be implemented in 2014, and follows on the heels of other changes that the Province of Québec has made to its mining tax since 2010.
The new regime will increase the amount of mining taxes payable by miners in Québec. First, all miners will be subject to a minimum mining tax, which was not the case previously. Second, a progressive mining tax on profit will be introduced, replacing the existing royalty. A miner will pay whichever amount is higher, the minimum tax or the profit tax.
The minimum tax will be computed based on the value of output at the head of the mine shaft (1% on the first $80 million of output, then increasing to 4%). A miner will be entitled to certain deductions in computing the value of that output, subject to a floor that will prevent the value from dropping below 10% of the gross value of annual output. Any minimum tax paid may be carried forward and applied against profit taxes in the future (in the form of a non-refundable tax credit).
The profit tax will be progressive, which means that the marginal tax rate applicable to profits will rise with rising profits. The existing single tax rate is 16%. The new rates will range from 16% to 28%, depending on the profit margin of the miner. A miner’s profit margin will be determined by dividing the miner’s profit by the total of the gross value of annual output for all the mines it operates. Effectively, this will allow Québec to benefit to a greater extent from future significant increases in the price of ore.
On the bright side, the regime will provide for an increased processing allowance. The rate applicable to computing the processing allowance will increase of 7% to 10% or from 13% to 20%, depending on the type of assets used by the miner in its processing activities.
More information about the new mining tax regime can be found here:
I note Québec’s assessment of its new regime: “Québec’s new mining tax regime appears to be the most demanding in Canada, mainly because of its progressive structure. However, the government considers that the greater demands of the new system are within the leeway available to Québec and should not jeopardize mining investments”.