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 
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

 

Deductions, Allowances, and Credits 

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