respect of the property. In the case of
mineral properties, percentage depletion
cannot exceed 50% of the taxable
income from the property. A taxpayer
is required to claim the amount that
generates the larger depletion allowance
on a property-by-property basis.
Research and Development
Tax Credits
R&D expenditures incurred in
relation to the development of
mining equipment, new metallurgic
processes, or other innovations may
be eligible for a tax credit equal to
20% of the increase in certain qualified
expenditures over those incurred
during a base period. In no case may
the base period amount be less than
50% of the total qualified expenditures.
Qualified research expenses eligible
for the R&D tax credit include wages
for employees directly engaged in
R&D activities and their immediate
supervisors, as well as supplies and
computer use charges.
Domestic Production
Activities Deduction
The domestic production activities
deduction (DPAD) is allowable in an
amount equal to 9% of the lesser of:
• qualified production activities income
of the taxpayer for the taxable year
and
• taxable income for the year.
For oil-related income, the DPAD is
reduced to 6%.
Qualified production activities income
includes income from the disposition,
lease, or licence of tangible personal
property that was extracted by the
taxpayer within the United States;
however, only income from an active
trade or business is taken into account,
since royalties, net profit interests, and
production payments received by a
taxpayer in its capacity as an investor
should not qualify for the DPAD. The
DPAD can result in reduction of the
effective US federal tax rate from the
maximum of 35% to as low as 31.85%.
Disposition of Property
A US person or a foreign person
engaged in a US trade or business can
be eligible for capital gains treatment on
the disposition of an economic interest
in a mining property or a mining interest.
If the property was a capital investment
but was used in a trade or business, the
IRC allows capital gains treatment to the
extent that capital gains exceed capital
losses. If capital losses exceed capital
gains, the resulting loss should be
treated as an ordinary loss. The taxpayer
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A Guide to Canadian Mining Taxation