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The federal government is scrapping some tax breaks for Canadian miners, but keeping one important one in place.
The industry was caught off-guard by an announcement in the budget that pre-production mine development expenses will be treated differently. They are currently treated as “Canadian exploration expense” (CEE) and are 100% deductible. Now the government wants to treat them as “Canadian development expense” (CDE) meaning they would only be deductible at a rate of 30% per year.
This means companies will be paying taxes before a mine is in production and they have recovered those development expenses, experts said. It introduces new risk, especially for junior companies trying to develop mines. They could have more trouble issuing flow-through shares to fund construction of projects.
On a less surprising note, the budget phases out accelerated capital cost allowances on mining machinery and equipment. A similar phase-out was announced several years ago in the oil and gas sector, and industry experts figured it would eventually happen in mining.
On the positive side, the junior mining industry is pleased the budget renewed the 15% mineral exploration tax credit. The credit, introduced in 2000, was designed to draw more exploration spending into Canada. The industry views it as increasingly crucial today, as raising capital for greenfield exploration has become extremely tough amid a rough bear market.
The credit, due to expire at the end of March, has been extended by 12 months. It only costs Ottawa about $100-million, but the budget estimates it has helped juniors raise about $800-million annually for exploration.
The budget also offers assistance for mining skills training, noting that the industry needs more than 100,000 new workers in Canada over the next decade. However, it is not clear when this will happen.
Pierre Gratton, president of the Mining Association of Canada, said it the budget is a mixed bag.
“It’s not a budget we’re going to celebrate. We’re not overly concerned, but it’s not our favourite budget ever,” he said.
For the original version of this article, please go to the National Post website: http://business.financialpost.com/2013/03/21/miners-could-face-funding-squeeze-on-projects-after-changes-to-mine-development-tax/