On March 21, 2013, the Minister of Finance tabled the 2013 federal budget, Economic Action Plan 2013. There are announced changes which will be of particular interest to the mining sector.
Phasing Out Tax Preferences for Capital Expenditures in the Mining Sector
Economic Action Plan 2013 proposes to phase out the accelerated capital cost allowance for capital assets used in new mines and major mine expansions and to reduce the rate at which pre-production mine development expenses may be deducted for tax purposes.
In 2006, the Government committed to examine opportunities to make the tax system more neutral across sectors to help ensure that investment is directed toward its most productive uses. The Government further committed in 2009, along with other G-20 countries, to “rationalize and phase out over the medium term inefficient fossil fuel subsidies.” In support of these commitments, the Government took action in Budget 2007 and Budget 2011 to phase out all tax preferences for oil sands producers relative to the conventional oil & gas sector. In addition, Economic Action Plan 2012 announced the phase-out of the Atlantic Investment Tax Credit for the oil & gas and mining sectors.
As a first step in making the tax system more neutral between mining and other industries, Economic Action Plan 2012 announced the phase-out of the Corporate Mineral Exploration and Development Tax Credit. Economic Action Plan 2013 takes further action toward this objective. It proposes to phase out tax preferences for capital expenditures in the mining sector by aligning the deduction rates of capital assets in the mining sector with those available in the oil & gas sector: the accelerated capital cost allowance for capital assets used in new mines and major mine expansions will be phased out; and the deduction rate for pre-production mine development expenses will be reduced.
These measures will improve the neutrality of the tax system and the allocation of investment and capital within the Canadian economy. Actions taken by the Government since 2006, including corporate income tax rate reductions and the elimination of the federal capital tax, have increased the competitiveness of Canada’s business tax system, including for the mining sector.
The alignment of deduction rates in the mining sector with those available in the oil & gas sector will apply to the mining sector generally, including coal producers. These measures constitute further action that the Government is taking in support of its G-20 commitment.
Supporting Junior Mineral Exploration
Economic Action Plan 2013 proposes to extend the 15-per-cent Mineral Exploration Tax Credit for flow-through share investors for an additional year.
The 15-per-cent Mineral Exploration Tax Credit helps junior mineral exploration companies raise capital by providing an incentive to investors in flow-through shares issued to finance mineral exploration. Over recent years, it is estimated that the credit helped junior mining companies raise an average of about $800 million annually in new financing for grassroots exploration. This credit is in addition to the deduction provided to the investor for the exploration expenses “flowed through” from the company that issues the shares.
The credit is scheduled to expire on March 31, 2013. However, given the ongoing economic uncertainty and to support the mineral exploration efforts of junior mining companies, Economic Action Plan 2013 proposes to extend the credit for an additional year, until March 31, 2014.
It is estimated that the extension of this measure will result in a net reduction of federal revenues of $100 million over the 2013-14 to 2014-15 period.