Canada’s 2014 budget kind to miners, extends 15% exploration tax credit

In what some analysts are calling an “unambitious” plan aimed mainly to balance the books ahead of the next election, Canada’s Finance Minister Jim Flaherty tabled the 2014 budget Tuesday, which didn’t include any significant revisions for the country’s mining and metals industry.

Despite, or perhaps, because of this lack of changes, miners welcomed the document. The Mining Association of Canada (MAC) praised the federal government’s extension of the 15% Mineral Exploration Tax Credit (METC) until March 2015.

In a statement, the industry body said the renewal of this tax incentive comes at a critical time, given the continued challenging economic environment faced by local junior miners.

MAC also applauded by the budget’s focus on improving the education outcomes of aboriginal youth through an agreement with the Assembly of First Nations.

“This announcement represents a financial commitment of more than $1.9 billion over three years starting in 2016 to support the Act, which aims to give First Nations youth greater access to quality education and enable them to participate fully in Canada’s workforce in the future,” said Pierre Gratton, MAC’s President and CEO.

The Association for Mineral Exploration in British Columbia (AME BC) also applauded the new budget, in particular the tax credit extension.

“Many of our members are having difficulty raising capital in these financially challenging times, and the renewal is much appreciated,” said David McLelland, chair of AME BC.

Five things you need to know about yesterday’s federal budget

Highlights from EY Federal Budget Tax Alert

  1. Mineral Exploration Tax Credit (METC) – The mineral exploration tax credit available to investors in flow through shares has been extended to flow through share agreements entered into on or before 31 March 2015. This program was scheduled to expire on 31 March 2014.
  2. Thin capitalization rules – The budget proposes to extend the thin-cap rules to apply to so-called back-to-back loan arrangements where an intermediary is interposed between the Canadian debtor and certain non-resident persons. It would appear that a guarantee provided by a foreign parent in respect of a loan provided by a foreign bank to a Canadian subsidiary would not be caught under these new rules.  The withholding tax rules will also be extended to apply to these forms of indebtedness. These rules will apply to years commencing after 2014. See page nine.
  3. GST/HST election for closely related persons – The budget proposes a number of changes to the “nil consideration” election which is currently available to relieve GST/HST that would otherwise apply to certain transactions between members of a closely related group. Previously the election was not available where a new member of the related group acquires assets from another member of the group and where, before that time, the new member had not yet acquired any other property. This restriction will now be relieved to make the election available. It is expected that this rule will provide relief in the case where corporate re-organisations are being undertaken where assets are being transferred to a newly formed entity. Under the previous rules the election was not available and GST/HST would have to be charged and claimed leading to a cash flow cost. It is also useful to note that previously there was no requirement to file the election with the CRA, going forward any existing or new elections will required to be filed with the CRA. See page 16.
  4. Offshore captive insurance companies – It is proposed that the base erosion rules in the foreign affiliate system are extended to apply to offshore captive insurance companies. See page seven.
  5. Eligible capital property rules – The budget outlines a proposal to simplify the rules dealing with eligible capital expenditures and eligible capital receipts. Typically these rules dealt with the treatment of intangible capital costs. The timing and implementation of this proposal will be subject to public consultation. See page six.

Image by BC Gov Photos via Flickr.