a taxpayer’s tax payable by one dollar, 
whereas a dollar of deduction will 
reduce the tax payable only by one dollar 
multiplied by the tax rate; therefore, 
a dollar of ITC is more valuable than 
a dollar of deduction. In very limited 
circumstances, the ITA allows taxpayers 
to obtain cash payment for ITCs. 

The credits described below require a 
taxpayer to incur CEE. For federal tax 
purposes, a taxpayer deducts any ITC 
claimed from its CCEE account in the 
year following the year in which it claims 
the credit. The overall result is that a 
taxpayer is entitled to a credit and a 
deduction equal to the expenditure less 
the amount of the credit. For example, 
a taxpayer that incurs CEE of $100 as a 
pre-production mining expenditure is 
ultimately entitled to an ITC of $10 and 
a deduction for CEE of $90. 

Any provincial tax credits reduce the 
amount of the federal tax credits.

A taxpayer may currently carry forward 
federal unused ITCs for 20 years, 
although most of the mining credits 
are being phased out. 

Pre-Production Mining 

Expenditures

Currently, taxable Canadian 
corporations are entitled to ITCs 
in respect of pre-production mining 
expenditures they incur. Pre-production 
mining expenditures are CEE incurred 
on a mineral deposit from which the 
principal mineral to be extracted is 
diamonds, base metals, or precious 
metals. A taxpayer is not entitled to 
an ITC in respect of any CEE that it 
renounces under a flow-through 
share agreement.

ITCs in respect of pre-production mining 
expenditures are being phased out. 
Taxable Canadian corporations are 

entitled to an ITC of 5% for mining 
grassroots CEE incurred in 2013. 
Thereafter, they will not be entitled to 
ITCs in respect of mining grassroots 
CEE. 

Further, except where a corporation 
entered into a written agreement 
to incur costs in respect of a new 
mine prior to March 29, 2012, taxable 
Canadian corporations will be entitled 
to ITCs at the rate of: 

• 10% for mine development CEE 

incurred prior to 2014, 

• 7% for such expenses incurred in 2014, 
• 4% for such expenses incurred 

in 2015, and 

• nil after 2015. 

A corporation that entered into a written 
agreement to incur costs in respect of 
a new mine prior to March 29, 2012 will 
be entitled to ITCs at the rate of 10% in 
respect of costs incurred prior to 2016.

Flow-Through Mining Expenditures

A taxpayer’s federal ITC includes 
15% of the taxpayer’s flow-through 
mining expenditures. A flow-through 
mining expenditure is an expenditure 
allocated to an individual, to which 
the individual is entitled by virtue 
of a flow-through share agreement 
renouncing qualifying CEE incurred by 
a corporation to the individual or to a 
partnership of which the individual is 
a member. Only an individual may have 
a flow-through mining expenditure. For 
these purposes, an individual does not 
include a trust. 

The expenditure must be CEE incurred 
before 2015 (including, for greater 
certainty, an expense that is deemed by 
the look-back rule to have been incurred 
before 2015) by a corporation conducting 
mining exploration activity from or above 

the surface of the earth for the purpose 
of determining the existence or location 
of a mineral resource. (The look-back rule 
is discussed in 

Deductions, Allowances, 

and Credits – Flow-Through Shares

.) 

Only specific grassroots CEE may 
qualify as flow-through mining 
expenditures. 

Where a corporation renounces 
grassroots CEE in a year in accordance 
with the look-back rule, it is deemed 
to have incurred the expenses on 
December 31 of the prior year. 
A corporation that incurs such 
expenses in 2015 and renounces them 
in January, February, or March of that 
year, pursuant to an agreement made 
before April 1, 2014, may be deemed 
to have incurred and renounced the 
expenses effective December 31, 2014 
for the purposes of the flow-through 
mining expenditure provisions. In this 
situation, an individual may claim ITCs 
in 2014 with respect to the renounced 
flow-through mining expenditures that 
are renounced in accordance with the 
look-back rule.

Atlantic Tax Credit

A taxpayer is entitled to an ITC for 
qualified resource property acquired 
for use in the mining industry in Nova 
Scotia, New Brunswick, Prince Edward 
Island, Newfoundland and Labrador, 
the Gaspé Peninsula, or a prescribed 
offshore region. This ITC is also being 
phased out.

Under grandfathering provisions 
introduced in 2012, expenses incurred 
before 2017 for qualified resource 
property may earn ITCs at the rate 
of 10% if they are incurred in respect 
of qualified resource property acquired:

• under a written agreement entered 

into before March 29, 2012; or

© 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