to avail themselves of such assistance
in exchange for an option allowing the
government of Québec to acquire an
equity stake in the development. These
corporations may claim an additional credit
of 10% for eligible expenses. This option
will be managed by Resources Québec.
The credit is treated as a payment by
the corporation on account of its tax
payable for the year. That is, the credit is
applied first against any taxes owing for
that year, and any excess is refunded to
the corporation. Exploration expenses
that have been renounced under a
flow-through share agreement are
not eligible for the resource tax credit.
However, if shareholders subscribing
to the flow-through shares are non-
residents of Québec, it may be possible
for the corporation to claim the Québec
resource tax credit.
Credits claimed are government
assistance and are subject to federal and
Québec income tax and Québec mining
tax (discussed under
Provincial Mining
Tax
) as either an income inclusion or
a reduction of the applicable resource
expenditure account.
Québec Investment Tax Credit
An eligible corporation that acquires
a qualified property may receive a
Québec investment tax credit ranging
between 5% and 40% for investments
relating to manufacturing and processing
equipment. To qualify for the tax credit,
the property must be:
• acquired after March 20, 2012 and
before January 1, 2018;
• included in CCA Class 41; and
• acquired for use:
– exclusively in Québec and
– primarily in the course of
ore smelting, refining, or
hydrometallurgy activities, other
than ore from a gold or silver
mine, extracted from a mineral
resource located in Canada.
Ontario Harmonization
Adjustment
In 2008, Ontario harmonized its
corporate income tax with the ITA;
harmonization became effective on
January 1, 2009. The harmonization
legislation contains transitional rules
that increase or decrease the Ontario
tax payable over a five-year period,
beginning on January 1, 2009. These
rules provide that:
• if a corporation’s federal tax attributes
at the transition time exceeded the
equivalent Ontario tax attributes, a
“transitional debit” is added to the
Ontario tax payable; or, conversely,
• if a corporation’s Ontario tax attributes
at the transition time exceeded its
equivalent federal tax attributes, a
“transitional credit” is deducted from
the Ontario tax payable.
Thus, over the five-year period, a
corporation will either pay additional
tax or obtain a credit. The amount of
the credit depends upon the applicable
Ontario tax rate and the portion of
the corporation’s income allowable to
Ontario. Unused transitional credits in a
taxation year can be carried forward to
future taxation years but expire at the
end of the five-year period.
Ontario Resource Allowance
Adjustment
Prior to May 7, 1974, royalties and taxes
paid by a corporation to a provincial
government in respect of the extraction
of natural resources were deductible
in computing income for the purposes
of the ITA. In 1974, in response to
soaring commodity prices, provincial
governments substantially increased
their royalties and taxes. This had the
effect of substantially reducing the
federal tax base. The federal government
initially reacted by disallowing the
deduction of provincial royalties and
taxes and providing for an abatement.
It subsequently replaced the abatement
with the resource allowance, effective
January 1, 1976. The resource allowance
was 25% of resource profits as
computed under the Regulations.
The federal government reversed its
policy in 2002. It removed the resource
allowance from the ITA and again
allowed a federal deduction for provincial
resource royalties and taxes.
At the time, Ontario also had a policy of
providing tax incentives and preferences
to stimulate the development of the
province’s mining resources.
Ontario therefore chose not to adopt
the new federal regime, but continued
to allow the resource allowance for
provincial purposes.
The harmonization of legislation required
that income for the purposes of the
Ontario legislation be the same as
income under the ITA. However, Ontario
wanted to maintain its distinct treatment
of its mining industry. As a result, the
harmonization legislation provides for
additional tax and additional credits to
put the taxpayer in the same position
that it would have been in if the federal
government had made no change to the
resource allowance. Where the mining
taxes are greater than the resource
allowance to which the taxpayer would
have been entitled, the taxpayer must
pay additional tax. Where the resource
allowance is greater than the mining
taxes, the taxpayer is entitled to a credit.
The amount of tax or credit depends
upon the Ontario rate of tax and the
portion of income allocable to Ontario.
Credits not used in a year may be carried
forward and applied in other years.
© 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms
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Deductions, Allowances, and Credits
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