reasonably incurred in mining
operations, processing, and smelting.
Gross revenue is the revenue from the
sale of minerals as a result of mining
operations in a year, including:
• income from processing,
• gains or losses resulting from the
fixing of a price for output of a mine
before delivery,
• gains or losses from hedging
transactions related directly to
the proceeds of the output of a
mine, and
• government assistance related to
revenue.
Deductible expenses include:
• unamortized pre-production
expenditures over the estimated
remaining life of the mine;
• rentals, royalties, charges, and other
payments to the Crown for the right
to engage in mining operations; and
• any undeducted exploration
expenditures exclusively incurred
by the taxpayer anywhere in
Newfoundland and Labrador before
the commencement of commercial
production.
Operators can also claim allowances for
depreciation and processing.
Depreciation Allowance
Depreciation may be claimed on
vehicles, machinery, plant, equipment,
buildings, and other assets of a capital
nature used in mining operations
and in processing and smelting. The
depreciation on processing or smelting
assets (Class 1 assets) and mining
assets that are not Class 3 assets (Class
2 assets) cannot exceed 25% of the
UCC. The depreciation on mining assets
acquired for and used in a new mining
operation or a major expansion project
(Class 3 assets) can be up to 100%
of the UCC. Only 50% of the assets
may be included in the UCC in the
year of acquisition for the purposes of
calculating depreciation. The deduction
is prorated for short taxation years.
Where a mining operation ceases to
be a new mining operation, or a major
expansion project, the Class 3 assets
are reclassified as Class 2 assets.
Processing Allowance
An operator may deduct a prescribed
amount by way of return on capital directly
and necessarily employed by the taxpayer
in processing. In addition, an operator
may deduct a processing allowance, equal
to 8% of the original cost of processing
assets and 15% of the original cost
of smelting assets, both of which are
permanently located in Newfoundland
and Labrador, and exclusive of interest
or financing charges. The processing
allowance cannot exceed 65% of net
income excluding this deduction.
Credit Against Tax on
Taxable Income
A credit is available against the 15% tax
on taxable income for a year. The credit
is based on the corporate income tax
paid to Newfoundland and Labrador
in the year and serves as a deduction
against the tax on taxable income.
The credit applies for 10 consecutive
years beginning in the year in which
commercial production is achieved in
the mine from which the mining income
is derived. The cumulative amount of
the credit cannot exceed $20 million.
The credit can be claimed only if all
depreciation and exploration expenses
available in the year have been utilized
by the operator.
The amount of the credit in respect
of corporate income tax for a year is
the lesser of $2 million and corporate
income tax payable under the provincial
Income Tax Act for the year in respect of
mining operations.
Tax on Amounts Taxable
A 20% tax applies to amounts taxable,
which are calculated as 20% of the
net income (as determined above),
if positive, minus amounts paid to a
person who receives royalties subject to
the mineral rights tax.
Mineral Rights Tax
Mineral rights tax applies where a
person receives consideration, including
rent and royalties, that is contingent
upon production of a mine, or computed
by reference to the production from a
mine, for the grant or assignment of any
right issued under the Mineral Act.
The annual tax is 20% of the net
revenue received in the year in excess
of $200,000. Where the consideration
received is from an operator and the
net revenue of the person in that year is
$100,000 or less, no mineral rights tax
is payable. Where net revenue in a year
is greater than $100,000 and less than
$200,000, the tax payable is 40% of net
revenue in excess of $100,000.
Net revenue is the total value of mineral
production royalties received less the
total of legal expenses incurred by the
person in the collection of the revenue,
exploration expenditures incurred by the
person, and royalties paid by the person
to another person, where that other
person is subject to mineral rights tax in
respect of the royalty paid.
The operator paying the royalties or
rentals is required to withhold and remit
the tax from the payment.
Yukon
Yukon imposes three separate royalties:
• a royalty on all ore and minerals
mined (the mining royalty),
• a royalty on all gold exported from
Yukon (the gold royalty), and
• a royalty on coal (the coal royalty).
© 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms
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A Guide to Canadian Mining Taxation