Canadian Tax Credits for Mining Companies

July 10, 2012 by  Filed under: Taxes 

Mining companies in Canada spend vast amounts of money on exploration, development, and operations. It is therefore important to be aware of funding sources that may offset their expenses. The Canadian government has created a number of tax provisions intended to promote mining activities in Canada. For taxation purposes, these activities are divided into two stages: extraction/processing and fabrication. Three Canadian tax credits that are applicable to mining companies include:

Canadian Exploration Expense (CEE) – Mining companies can claim many different expenses (ex. prospecting, geophysical or geochemical surveys, drilling) as long as they were for the purpose of determining the existence, location, and extent or quality of a resource. However, this does not include expenses incurred after a mine has started production. The CEE allows a 100% deduction on expenses but cannot be used to create a non-capital loss.

Canadian Development Expense (CDE) – Eligible expenses for this Canadian tax credit include those expenses related to mine development, such as drilling, sinking or excavating a mineshaft, and the cost of any Canadian mineral property. These activities must have taken place in Canada for the expenses to be eligible. Deductions of up to 30% may be possible; however this percentage is calculated for a pool of expenses known as the Cumulative Canadian Development Expenses (CCDE) of which the CDE is a part.

The Scientific Research and Experimental Development (SR&ED) – This refundable tax credit allows companies to recoup research and developments costs. However, the CRA Application Policy 95-02 specifically disqualifies expenditures related to “prospecting, exploring or drilling for, or producing, minerals, petroleum or natural gas”. Such expenses may qualify for the first two Canadian tax credits on this list, but not for the SR&ED tax credit. Research and development expenditures that qualify for SR&ED may include: exploration (ex. a new detection method developed by a geophysics company), operations (ex. a new in situ mining technique), or reducing environmental impacts (ex. a new way of processing mine tailings). Mining companies having eligible expenditures may qualify for a rebate of up to 82% (depending on the province).

So there you have it. When a proper application is submitted, these three tax credits provide a significant rebate for mining companies in Canada. They’re a good start, but they are not the only ones available to mining companies. It is advantageous to research all of the applicable tax credits, or to consult an expert that can provide more information. A broad understanding of the available Canadian tax credits will ensure a bright future for Canada’s mining companies.

Your company can claim different expenses from the Canadian government which may include money spent on exploration, development and operation. Understand what the different Canadian tax credits are by researching about it or by consulting experts on funding sources today.

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