Although in recent years the federal and provincial 
governments have eliminated some of the incentives 
available to the mining industry, Canada’s tax environment 
continues to be favourable to businesses engaged in mining 
activities and their investors. The federal and provincial tax 
regimes offer a series of mining-specific tax incentives to 
encourage investment in the capital-intensive and high-risk 
mining industry. The following are some of the favourable 
attributes of the current system:

• The rates of income tax are low relative to most other 

jurisdictions in which mining activities take place.

• The rapid write-off of intangible expenses and the cost of 

tangible assets permits taxpayers to recover their costs 
of bringing a mine into production before any tax must 
be paid. While recent legislative changes will in the future 
reduce the rate at which these expenses may be written 
off, as a practical matter, most taxpayers should be able 
to recover their costs of bringing a mine into production 
before any tax must be paid.

• Tax credits for intangible expenses reduce the tax liability 

of corporations; such credits can be carried forward for a 
period of 20 years. Although most credits are being phased 
out, existing credits may still be carried forward for a period 
of 20 years. 

• Operating losses can be carried forward for 20 years, 

making it almost certain that a taxpayer will be able to use 
start-up losses if it does develop viable mining operations.

• Only one-half of a capital gain is included in income. 
• Capital taxes have been eliminated in most jurisdictions.
• Most provinces have sales and use taxes that allow 

businesses to pass along the tax to the ultimate consumer. 
Therefore, in the end, businesses do not bear the cost of 
these taxes.

• Most provinces impose a profit tax instead of royalties on 

mining operations.

• A flow-through share mechanism allows corporations to 

renounce intangible expenses to investors. This allows 
corporations engaged in certain exploration activities to 
monetize expenses that they are unable to utilize in the 
foreseeable future.

• There is no withholding tax on non-participating interest 

paid by a corporation to an arm’s-length non-resident lender.

• Most of Canada’s treaties provide that the rate of 

withholding tax on dividends paid to a non-resident parent 
corporation is limited to 5%. 

The following features of the Canadian tax system are not so 
favourable to the mining industry:

• Some provinces (e.g., Manitoba, Saskatchewan, and 

British Columbia) impose sales and use taxes that are 
borne by businesses, rather than the ultimate consumer.

• Some provinces (e.g., Alberta and Saskatchewan) 

require mining operators to pay royalties and not  
profit-based taxes.

• There are other taxes and charges for which a business is 

liable, whether or not it is profitable. These include Canada 
Pension Plan and Employment Insurance payments at the 
federal level, and provincial employer health taxes and 
payroll taxes.

© 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms 
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

4 

|

 A Guide to Canadian Mining Taxation