By Peter C. Maxfield, Robert M. Allen CPA and J. Andrew Miller CPA
Editor's Note: This Emerging Issues Analysis is an edited excerpt from Chapter 13 of the LexisNexis Matthew Bender title Taxation of Mining Operations.
Each of the provinces and territories of Canada imposes its own corporate income tax at its own tax rate. Most provinces apply their provincial tax rate against taxable income computed under the federal rules and allocated to the particular jurisdiction under the sales/wages formula. For Alberta and Quebec, there are some differences between the provincial and federal rules of the computation of the tax base for mining companies.
All provinces having significant mining operations impose mining taxes and/or mining royalties and/or mineral land taxes on mining operations within their jurisdictions. This is a third level of taxation, separate and distinct from provincial income taxes and federal income taxes. These mining levies are intended to compensate the province for the extraction of non-renewable resources owned by it.
Alberta has a mining tax only on gold, but imposes various royalties that vary by specific mineral product. Also, royalty rules applying to tar sands mining are project-specific.
Saskatchewan imposes a series of levies which can resemble a royalty or a profit tax or a combination depending on the type of mineral produced. Potash producers are subject to a base payment production tax of 35% of profits subject to minimum and maximum payments and a 10 year holiday for new mines, plus an additional 15% or 35% profit tax (minus the base payment) depending on sales volume that exceed certain thresholds. Uranium producers are subject to a basic royalty of 5% of gross sales plus a graduated royalty from 6% to 15% as sales price increases. There is a coal royalty of 15% of the mine mouth value of coal. There is a reduction to royalties and production taxes on coal, uranium and potash for a Saskatchewan Resource Credit which is generally equal to 1% of gross sales. Resource corporations are also subject to a Saskatchewan Resource Surcharge depending on the size of the corporation, equal to 3% of the gross sales of potash, uranium or coal. Precious and base metal mines are eligible for a 10 year royalty holiday after which there is a royalty of 5% of net profit for sales volumes up to a certain level and 10% of net profit on the excess volumes.
Each of the provinces of British Columbia, Manitoba, Ontario, Quebec, Nova Scotia, New Brunswick and Newfoundland, and the federal government in respect of mines in the Yukon, Nunavut, or Northwest territories, impose mining taxes on defined mining profits. Certain features are common to the taxing statutes. With the exception of the British Columbia Mineral Tax Act, the mining taxes in theory are levied on mining profits. However, the starting point is generally the profit from both mining and processing operations, with the deduction of a processing allowance that removes from taxable profits a given return on the investment in processing assets. The processing allowance is computed as a stated percentage of the original cost of processing assets. There are generally provisions that the allowance cannot be less than a minimum nor more than a maximum percentage of combined mining and processing income before the allowance. Each statute permits a deduction for depreciation of mining and processing assets and for the amortization of preproduction expenses (at varying rates). In computing mining profits subject to tax, none of the statutes permit a deduction for the cost of the mining property, a deduction for depletion, or a deduction for exploration and development expenses incurred outside the particular province. Interest expense is not deductible, and only Newfoundland and New Brunswick permit a deduction for non-Crown royalties (these two provinces tax the recipient). British Columbia is the only jurisdiction to give relief for undeducted expenditures of prior years.
LEXIS users can access the complete commentary here. Additional fees may apply. (Approx. 15 pages)
1-13 Taxation of Mining Operations § 13.02 - Mining Taxation
1-13 Taxation of Mining Operations § 13.14 - Provincial Taxes
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