As part of the federal budget process, the federal Finance Minister Bill Morneau tabled a Notice of Ways and Means Motion in the House of Commons on stock options on June 17, 2019 in conjunction with the implementation of the federal 2019 budget that include a proposed $200,000 annual limit on employee stock option grants that can receive tax-preferred treatment. However, Canadian controlled private corporations (CPCCs) would not be subject to the limit, and the government sought stakeholder input on characteristics of non-CPCC companies that should be considered start-up, emerging and scale-up companies and should not be subject to the $200,000 limit.
Access to capital in the mineral exploration and mining industry can be challenging due to its cyclical nature. AME appreciates the current fiscal framework in place to encourage investment through mechanisms such as flow-through financing, as well as the current framework governing stock options. Together, these incentives contribute to Vancouver’s role as a global centre for mineral exploration – home to 800 mineral exploration and mining companies – most of which are small to medium-sized enterprises that are not revenue generating. The role of these incentives is particularly important in keeping the mineral exploration industry competitive, particularly when policy decisions – namely the legalization of marijuana – alter the playing field. Investment in BC-based public mineral exploration and mining companies fell from $6.105 billion in 2017 to $4.511 billion in 2018, while investment in public cannabis companies based on BC exchanges rose from $1.398 billion to $4.545 billion, according to the BC Securities Commission. Furthermore, the majority of money raised for mineral exploration is not used to compensate head office employees. In fact, a typical junior exploration company that attracts $3 million in financing can be expected to spend only $300,000 in total head office expenditures (including rent, salaries and other overhead costs) as most expenses are incurred on or near the project site, according to a study recently commissioned by AME.
Tax-preferred treatment for stock options, in our view, allows these companies to pay nominal salaries, while still attracting talented personnel, thus preserving scarce venture capital for exploration programs focused on the discovery of mineral deposits that may become future mines. The implementation of a $200,000 annual limit on employee stock option grants would limit the financial tools a company has in attracting and retaining skilled talent in a capital-constrained industry. Such a limit also appears to be against the intent of the proposed legislation, which is to encourage and support younger and growing businesses, as opposed to large, mature companies.
What AME is doing
AME has recommended in its September 13 letter to Minister Bill Morneau that non-CCPCs with revenue below $100 million in either of the last two fiscal years, as reflected in consolidated financial statements for such fiscal years, should be exempt from the newly proposed $200,000 limit. Such a prescribed condition, as suggested by the Prospectors & Developers Association of Canada, would ensure that mineral exploration and development companies can attract and retain the talent they need to discover, build and open new mines, activities that create well-paying, family-supporting jobs, often in remote areas with few economic development opportunities.