Mining group wants Ottawa to raise tax incentives for exploration
Prospectors and Developers Association of Canada proposes 30 per cent mineral exploration tax credit
A group that advocates for Canadian mining companies is calling on the federal government to increase tax breaks for investors who put their money into mining exploration.
The Prospectors and Developers Association of Canada wants the government to raise the mineral exploration tax credit from 15 to 30 per cent for three years.
It's asking its members to send letters of support for the proposal to Finance Minister Joe Oliver and to copy Natural Resources Minister Greg Rickford.
The vice-president of exploration and development for KWG Resources agreed.
'The Ring of Fire would've never been discovered.'
Moe Lavigne said his company has been struggling to raise money for several months to continue its exploration in the Ring of Fire.
"If ... the current environment existed back in 2007, the Ring of Fire would've never been discovered because nobody would've been able to raise money to go up there and drill," he said.
Kara blamed the lack of cash on nervous investors who don't want to take chances on risky junior mining stocks in an uncertain economy. He also said the market for minerals has hit a low just when exploration costs are going up.
"We've found a lot of the easy-to-find deposits, and we're having to look deeper, and we're having to look in really remote parts of the country," he said.
Evidence suggests tax incentives work
Kara said history has shown that tax incentives such as the one his organization is proposing help draw investors back to the sector.
"In downturns ... a larger percentage of all the financing that happens in Canada, a larger percentage of that money is raised through the flow-through and mineral exploration tax credit system. So we know that if we double that incentive today, it is going to be a significant driver for investors to put money back into exploration," he said.
Natural Resources Minister Greg Rickford told CBC that Canada has the lowest overall tax rate on new business investments in the G-7, giving it an advantage in the extractive sector.
"And we will continue to build on this action," he said in an email.
"Our government understands that Canada’s junior mining sector is vital to job creation, economic growth and prosperity for Canadians, particularly in Northern Ontario. That’s why we are continuing to lower taxes, reduce red tape, open new markets, and create the conditions for companies, particularly those in the extractive sector, to succeed in Canada."
The global landscape is changing
The mineral exploration tax credit is available to investors who purchase so-called flow-through shares.
The shares are sold by mineral exploration companies with little or no revenue from which to deduct their business expenses for tax purposes. The shares allow the company to transfer the available tax credit for their exploration expenses to investors, who can then deduct the full price of the shares on their tax returns.
Since 2000, the federal government has further encouraged investment in the shares by providing purchasers with the 15 per cent mineral exploration tax credit.
The money raised from the sale of the shares must be used exclusively for mineral exploration within Canada.
Kara said the original credit helped Canada attract the number one share of exploration investment in the world, but the landscape has changed in the past 15 years.
"Australia has put in place a similar system, which copies ours actually and is attracting capital to their country, he said, "so this call for a doubling for a short-term period — only for three years — it's all part of Canada continuing to show that it's innovating and it's responding to the global competition for capital."
Kara said Canadians have a vested interest in supporting the mining industry with their taxes because it has generated almost 80 billion dollars in taxes and royalties to governments in the last 10 years. He said it also contributes to healthy economies in rural and remote communities.
- A previous version of this story incorrectly stated that the mineral exploration tax credit makes the total tax credit on the purchase of a share higher than the price of the share itself.Dec 11, 2014 11:28 AM ET