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Mining tax incentives in Quebec
By hugues Lachance, CPa, Ca, Partner, tax, kPmG Canada
The mining sector in Quebec and elsewhere is a playing field that presents as many risks as it does opportunities. Since 2010, many changes have been made to the Quebec Taxation Act and the Mining Tax Act. The following article discusses the tax incentives available for companies exploring or operating a mine in Quebec. 1. tax Credit for Resources
Any company that conducts exploration work in Quebec is eligible for a refundable tax credit at rates ranging from 12 per cent to 31 per cent. The higher rate is reserved for companies that do not develop any mineral resources in commercial quantities. Companies operating in the near north and the far north benefit from an increased credit of 7.75 per cent.
Eligible projects are those pursued to determine the existence, location, extent, or quality of a mineral resource in Quebec. Excluded are costs for feasibility studies, environmental studies, and consultation with communities in some cases unless the costs are incurred to obtain a permit to conduct exploration. Eligible expenses that are renounced under a flow-through agreement are not eligible for the Tax Credit for Resources. 2. Flow-through shares
Flow-through shares entitle holders to deduct the cost of their investment from income in the year of acquisition of the share. In Quebec, the flow-through deduction can reach 120 per cent if the expenses renounced by the mining company in favour of an individual are incurred in Quebec for surface exploration. The federal government offers a tax credit of 15 per cent of the amount subscribed. 3. Refundable duties credit for losses
Under the Mining Tax Act, a 16 per cent credit is granted to companies that incur exploration and development expenses before the mine comes into production and that is not associated with any mine in commercial production. Only 50 per cent of exploration expenses are eligible. Exploration expenses of companies that develop mineral resources are not eligible for the credit. Eligible expenses that are renounced are not eligible for the credit. Since March 2017, a corporation that incurs expenses related to community consultations may deduct these expenses or claim a credit. Since March 2018, a corporation that incurs expenses related to the environment may deduct these expenses or claim a credit. The Quebec Minister of Finance announced in March
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4. tax holiday for major investment projects
Corporations or partnerships that carry out large investment projects (minimum investment of $100 million or $50 million if the investment is made in certain regions) can benefit from a tax holiday in respect of their eligible activities and a holiday from contributions to the Health Services Fund (HSF) on the wages paid to employees engaged in eligible activities. This minimum investment threshold has been reduced from $75 to $50 million in the 2019-2020 provincial budget.
Although the exploitation of mineral deposits is normally excluded from the tax holiday for major investment projects, second-stage mineral processing operations may be eligible. 5. investment tax credit
A tax credit is available for the purchase of new manufacturing and processing equipment when such equipment is used in the course of smelting, refining, or hydrometallurgy activities (other than gold or silver).
The credit varies between four per cent and 24 per cent, depending on region and size of the company. The increased rate is available only on the first $75 million investment (subject to a cumulative maximum over three years).
On August 15, 2018, the minister of finance has increased the rate of the credit for purchases made before January 1st, 2020. The rate of the credit can vary from five to 45 per cent. 6. R&D tax credit
A refundable credit on wages and amounts paid to subcontractors is available for R&D activities in Quebec.
The credit ranges from 14 per cent to 30 per cent. u
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