Mining-Specific Tax Provisions

Mining activities—including concentrating, smelting, and refining—are eligible for the following special tax treatments under Canada’s corporate income tax laws.

• Mining taxes and royalties paid to a province or a territory with respect to income from a mineral resource are fully deductible when computing income for federal income tax purposes. Most capital assets acquired by mining and oil and gas companies qualify for a depreciation rate of 25% on a declining balance basis. The depreciation of tangible assets is allowed under the system of capital cost allowances (CCA). In addition to the normal 25% rate of depreciation accorded to capital assets, the accelerated capital cost allowance (ACCA) can provide for a depreciation allowance of up to 100% of the asset cost. Assets must have been acquired before the start of commercial production or major expansions, or for the portion of investment expenditures in excess of 5% of the gross income.
• Canadian exploration expenses (CEEs) are those incurred by the taxpayer for determining the existence, location, extent, or quality of a mineral resource, or petroleum or natural gas, in Canada. Until 2018, CEEs also include some expenses involved in bringing a new mine into production, including clearing, removing overburden, and stripping and sinking a mine shaft. CEEs are 100% deductible in the year in which they occur. Taxpayers can carry unused balances forward indefinitely, or transfer them to flow-through share investors. Under a qualifying environmental trust (QET), contributions to qualifying mine reclamation trusts can be deducted in the year in which they occurred for income tax purpose. Canadian mining companies that incur exploration and development expenses abroad can claim the Foreign Resource Expense (FRE) on a country-by-country basis for income tax purposes. The basic FRE deduction for each country is between 10% and 30% of the cumulative FRE balance for that country, with the upper limit restricted to the amount of available foreign resource income for that country. However, a supplemental FRE deduction may be permitted if the country limitation results in a global FRE claim of less than 30%.
• Canadian development expenses (CDEs) are those incurred in: Sinking or excavating a mine shaft, main haulage way, or similar underground work for a mine in Canada built or excavated after the mine came into production; Pre-production mine development expenses (after 2017); The cost of any Canadian mineral property. CDEs can be deducted at a 30% declining balance. Unclaimed balances can be carried forward indefinitely or transferred to flow-through share investors (excluding the cost of any Canadian mineral property).

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