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 

© 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