February 20, 2017
Environmental Studies & Community Consultation Tax Credits
The BC Provincial government recently announced excellent news regarding mineral exploration. The British Columbia Mining Exploration Tax Credit program has been expanded to include cash refundable tax credits for environmental studies and community consultations.
This follows the Federal government’s expanded definition of Canadian Exploration Expenses and another one-year extension of the Federal and BC flow through share program.
British Columbia Mining Exploration Tax Credit (BC METC)
Following the annual Association for Mineral Exploration (AME) Roundup conference in Vancouver on January 23, 2017, the BC government proposed amendments to the Provincial Income Tax Act. The amendments allow costs for environmental studies and community consultations to be eligible for the BC METC if the costs were incurred for the purpose of determining the existence, location, extent, or quality of a mineral resource in BC.
The BC METC is a cash refundable tax credit of 20% on qualified mining exploration expenses in the province, and offers an enhanced rate of 30% in areas affected by the mountain pine beetle, which covers approximately 85% of BC. The amendments announced by the BC government were included in the 2017 Provincial budget and remain subject to the approval of the BC legislative assembly.
Mining companies incur significant exploration costs related to environmental studies and community consultations. Historically, these costs have not been eligible for purposes of calculating BC METC refundable tax credits based on qualifying exploration activities.
The announced changes will allow mining companies to qualify for higher BC METC cash refunds to help facilitate resource exploration in British Columbia. As refundable tax credits, companies can receive BC METC cash refunds regardless of whether their operations are profitable or not.
British Columbia Mining Flow-Through Shares Tax Credit (BC MFTS)
During the AME Roundup 2017, Premier Christy Clark also announced that the Provincial government would extend the BC MFTS to December 31, 2017. The flow-through shares tax credit allows individuals who invest in flow-through shares to claim a non-refundable tax credit of 20% of their BC flow-through mining expenditures.
As a result of the extension of the BC MFTS Tax Credit, mining companies can continue to offer flow-through shares as incentives for potential investors. Structuring an investment using flow-through shares allows investors to receive a tax deduction if the money invested is spent by a mining company on eligible expenses, and these costs are passed on (or flow) to the investors as flow-though expenditures. The expenditures will now include environmental studies and community consultations incurred for the purpose of determining the existence, location, extent, or quality of a mineral resource in British Columbia.
Changes to Canadian Exploration Expenses (CEE)
Including Extension of Mineral Exploration Tax Credit
The BC government’s announcements echo the changes made by the Federal government in 2016. The Federal government expanded the definition of CEE to include costs incurred for environmental studies and community consultations incurred for the purpose of determining the existence, location, extent, or quality of a mineral resource in Canada. The Federal changes received royal assent on June 22, 2016.
On March 5, 2017 Canada’s National Resources Minister Jim Carr announced at the PDAC convention that the Federal government will extend the Federal Mineral Exploration Tax Credit for flow through shares investors for one more year until March 31, 2018. This announcement is expected to be included by the government in its next Federal budget and still requires royal assent.
The Federal Mineral Exploration Tax Credit provides a non-refundable tax credit of 15% on eligible CEE expenses.
Conclusion
The BC and Federal governments have announced positive changes to support mineral exploration activity. Funds raised from flow through shares can be used to pay for eligible costs of environmental studies and community consultations in Canada. When using non-flow through funds, companies can generate BC METC refundable tax credits on eligible exploration costs including environmental studies and community consultations as proposed by the BC Provincial government.
Please contact Joseph Bonvillain, CPA, CA of the Manning Elliott Mining team for further information about these updates or any other tax issues relating to mineral exploration.
The above content is believed to be accurate as of the date of posting. Canadian Tax laws are complex and are subject to frequent changes. Professional tax advice should be sought before implementing any tax planning. Manning Elliott LLP cannot accept any liability for the tax consequences that may result from acting based on the information contained therein.