Tax memo: August 14, 2012 legislative proposals: Alert for mining companies

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Memo No. 2012-32

On August 14, 2012, the Department of Finance released for consultation draft legislative proposals that implement measures included in the March 29, 2012 federal budget. Comments on the proposals are due by September 13, 2012.

This Tax Memo summarizes the draft legislative proposals that affect the Canadian mining industry. In particular, it focuses on the phase-out of the investment tax credit (ITC) in respect of eligible Canadian exploration expenses (CEE).

Currently, a taxable Canadian corporations can claim non-refundable ITCs equal to 10% of its “pre-production mining expenditure,” which is an expenditure incurred after 2002 that is:

  • referred to as a “grass-roots” exploration expense or as a “development expense”;
  • in respect of a mineral deposit from which the principal minerals to be extracted are diamonds, base metals, precious metals or industrial minerals that, when refined, result in a base or precious metal; and
  • not renounced to a flow-through shareholder.

The 2012 federal budget proposes different ITC phase-out rules for grass-roots exploration expenses and for development expenses.

Grass-roots exploration expenses are incurred by a taxable Canadian corporation for the purpose of determining the existence, location, extent or quality of a mineral resource in Canada that is a mineral deposit from which the principal minerals to be extracted are diamonds, base metals, precious metals or industrial minerals that, when refined, result in a base or precious metal.