Highlights of Proposed New Mining Tax Regime

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On May 6, the Government of Québec announced a new mining tax regime, which, if passed by the National Assembly, will be effective as of January 1, 2014.

General Overview of Proposed New Rules

The current system providing for an annual tax on profits at a rate of 16% would be replaced by a two-tier system under which the mining tax required to be paid by mining companies would be the greater of:

  • A mining tax on output value at the mine shaft head (which may not be less than 10% of the gross value); or
  • A progressive mining tax on profit.

It follows that all mine operators active in Quebec would have to pay a minimum mining tax going forward.

The minimum mining tax on output value at the mine shaft head would be computed annually:

  • At a rate of 1% for the first C$80 million; and
  • At a rate of 4% beyond this threshold.

The progressive tax rates on mining profit based on an operator’s profit margin (annual profit divided by gross output value of the mine) would be as follows (Figure 1):

Figure 1

PROFIT MARGIN APPLICABLE RATE MAXIMUM EFFECTIVE RATE
1st segment: 0% to 35% 16.0% 16.0%
2nd segment: 35% to 50% 22.0% 17.8%
3rd segment: 50% to 100% 28.0% 22.9%

Where applicable, that portion of the minimum mining tax in excess of the progressive mining tax on income could be applied to reduce the progressive mining tax on profit in the future (subject to payment of the minimum tax every year).

In computing profit, the processing allowance will be enhanced:

The rate applicable on eligible assets in Quebec:

  • Would increase from 7% to 10% when a mine operator engages solely in concentration operations (including smelting activities and gold and silver refining);
  • Would increase from 10% to 20% when a mine operator engages in processing operations in Quebec (smelting, refining, production of metal powder and billets); and

The maximum processing allowance would increase from 55% to 75% of the annual profit of each mine.

The Government expects that this new regime could boost tax revenues by between C$73 million and C$200 million per year in 2020.

Other Measures Expected

Based on the announcement, the next reform of the Mining Act, the tabling of which is expected over the next few weeks, would include provisions on the transparency of mining operations requiring the following information to be made public:

  • The annual mining tax paid by each mining corporation; and
  • Information on tonnage mined.

In its press release, the Government also announced that measures aimed at creating more jobs in the processing sector would be included in the next reform of the Mining Act.

Finally, it should be kept in mind that the draft regulations increasing the financial guarantee that mining corporations will be required to provide has been submitted to a comment period and will likely be passed over the next few weeks. Under this new regulation, mining operators shall be required henceforth to provide a financial guarantee covering 100% of the cost of restoring the mines they operate (see our preceding newsletter for more information on this topic: “Quebec mining industry: Regulatory reform is underway”).

Topics:  Canada, Mining, Mining Tax, New Legislation

Published In: Energy & Utilities Updates, Tax Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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