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.
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A Guide to Canadian Mining Taxation