Overview of the
Canadian Tax Regime
Mining Activities
Canada’s tax regime for mining activities applies to three
principal stages of a mining operation:
• exploration and development;
• extraction;
• processing (including concentrating, smelting, milling,
and refining).
The tax regime provides for special treatment of these
activities, to create and maintain a favourable environment
for investment in the mineral resource sector. This special
treatment includes deductions, allowances, and credits that
may be claimed against the income from the mining operation,
either in the year of expenditure or, sometimes, in a prior or
subsequent year.
Different rules may apply to different forms of organization. It
is therefore important to consider the applicable tax treatment
before deciding what type of structure will be used for
investment in a mining project.
Forms of Organization
Canadian tax law contemplates that mining activities may
be carried on by an individual, a corporation, a trust, or a
partnership. Such legislation also provides for the issuance
of flow-through shares by a corporation, which permit the
corporation to renounce its deductible resource expenses
to the purchasers of the shares.
A non-resident individual or corporation may carry on
business directly in Canada or indirectly through a
Canadian corporation.
The use of partnerships and joint ventures has recently
become more common in structuring investments in the
mining industry. There are two reasons for this development.
First, new mining projects have become comparatively more
expensive because these activities often take place in remote
locations, and investors in these projects wish to share the
risks. Second, mining has become more international in scope
as other countries (such as China) look to external sources
for supplies. As a result, partnerships and joint ventures
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A Guide to Canadian Mining Taxation