On Sunday March 1, 2015, the Honourable Joe Oliver, Federal Minister of Finance addressed the Prospectors & Developers Association of Canada (“PDAC”) at the annual PDAC Convention in Toronto and announced certain proposals aimed at bolstering Canada’s junior mining industry. First, the Government has announced that it intends to extend the 15% Mineral Exploration Tax Credit (“METC”) for flow-through share investors for an additional year. The METC was scheduled to expire on March 31, 2015. The METC was first introduced in 2000 as a temporary measure which expired in 2003. Since 2003, the Department of Finance has extended the METC annually, one year at a time.
The Government has also modified its previous position with respect to the types of expenses that will qualify as Canadian exploration expenses (“CEE”). Expenses which qualify for CEE treatment are 100% deductible in the year they are incurred. Additionally, certain types of CEE may be renounced to investors pursuant to flow-through share agreements which enable junior mining companies to raise capital and fund exploration programs. In a letter to PDAC dated September 19, 2007, the Canada Revenue Agency (“CRA”) provided certain guidelines in determining whether certain expenses incurred at the exploration stage qualified as CEE. In that 2007 letter, the CRA took the position that environmental assessments and community consultations undertaken to meet a legal requirement to obtain a permit would not be eligible for CEE treatment as these costs are not incurred for the purpose of determining the existence, location, extent or quality of a mineral resource in Canada.
In his speech, Minister Oliver announced the government’s intention to modify the definition of CEE contained in the Income Tax Act (Canada) to provide that effective March 1, 2015, the costs associated with undertaking environmental studies and community consultations as a pre-condition to obtaining a licence or permit to explore will qualify as CEE.
These proposed tax measures are welcome particularly since many mining companies are facing challenges in securing capital.