An effective and progressive securities and taxation regime is a critical component to encouraging investment in mineral exploration and realizing successful developments of mine projects.
British Columbia’s tax incentives for mineral exploration are available to individual investors as well as corporations, active members of partnerships and individuals conducting grassroots mineral exploration.
Individual Tax Credits – British Columbia Mining Flow-Through Share Tax Credit
A flow‐through share (FTS) is a share, or the right to buy a share, of the stock of a mineral resource company where tax deductions “flow through” from the company to the investor. A flow‐through share is issued under a written agreement between a corporation and an individual. Under the agreement, the individual agrees to pay for the shares, and the corporation agrees to transfer certain mining expenditures to the individual. Flow-through shares were originally introduced to address an exploration financing inequity which arose between major and junior exploration companies. Flow-through share investors can deduct their investments from otherwise taxable income.
The British Columbia mining flow-through share (BC MFTS) tax credit allows individuals who invest in flow-through shares to claim a non-refundable tax credit equal to 20% of their British Columbia flow-through mining expenditures. Any unused credit at the end of a tax year may be carried back 3 years or forward 10 years.
The BC MFTS has been harmonized with, and has been in addition to, the 15% federal Mineral Exploration Tax Credit.
What does this mean for BC investors?
A BC investor, with taxable income of more than $113,805 and who invests $1,000 in flow-through shares, would receive tax credits and tax savings totaling $757 – partially offset the following year by $139 in taxes payable on the tax credits, for a net benefit of 62% of the investment. The tax benefits will vary dependent on the investor’s marginal tax rate and jurisdiction of taxation. Currently, Quebec offers the largest potential tax savings for flow-through share investors because of its 150% tax deduction for qualifying exploration expenditures incurred in Quebec. BC still offers the best tax credit available in Canada.
Tax Deductions vs Tax Credits?
Eligible exploration expenditures have been 100% deductible against income from any source for over 20 years. These deductions shelter before-tax income. Tax credits apply directly to reduce taxes payable.
- A non-refundable tax credit reduces taxes to the extent of taxes payable.
- A refundable tax credit reduces taxes payable and then, if there is an excess, results in a cash refund.
BC MFTS and federal tax credits are non-refundable (the investor has to pay taxes in order to use the claim). However, unused credits can be carried back and applied against taxes paid in the previous three years or carried forward for up to 10 years – or 20 years in the case of the federal tax credits earned after 2005.
Tax credits are considered “assistance” for income tax purposes and accordingly they reduce the Canadian exploration expense pool. Both provincial and federal tax credits reduce the pool in the year following the one in which they were claimed.
For more information on Flow-Through Shares, contact the Canada Revenue Agency Mining Incentives technical helpline at 604.666.8430.
Corporate Tax Credits – Mining Exploration Tax Credit (BC-METC)
Corporations, active members of partnerships, and individuals conducting grassroots mineral exploration in British Columbia may qualify for the Mining Exploration Tax Credit (BC-METC).
To be eligible, qualified mining exploration expenses must be incurred for determining the existence, location, extent, or quality of a mineral resource in British Columbia. The credit applies to exploration for all base and precious metals, coal and some industrial minerals. For more detailed information on qualifying minerals, contact the Canada Revenue Agency at 1.800.663.1511.
The credit is calculated as 20% of qualified mining exploration expenses less the amount of any assistance received or receivable. Assistance includes reimbursements a taxpayer has received or is entitled to receive, as well as grants, subsidies, rebates and forgivable loans.
After February 20, 2007, an enhanced rate of 30% is available for qualified mineral exploration undertaken in prescribed Mountain Pine Beetle affected areas. The prescribed Mountain Pine Beetle affected area has been expanded effective December 1, 2008 (see details below for viewing the area).
Viewing the Mountain Pine Beetle Area
Mineral Titles Online: https://www.mtonline.gov.bc.ca/
Mountain Pine Beetle Salvage Area is available as a layer under Administrative Boundaries.
To remain internationally competitive, AME works closely with industry, government and allied business organizations to help ensure that taxation systems in British Columbia and Canada are predictable, transparent and provide greater certainty. AME has been a strong promoter of enhanced tax credits for the mineral exploration industry including the Mineral Exploration Tax Credit (METC) and the Mining Flow-Through Share programs (MFTS). Through AME’s advocacy and actions of the Mining Jobs Task Force, both tax credits were made permanent through BC Budget 2019.
AME has successfully advocated along with the Prospectors & Developers Association of Canada (PDAC) to include costs toward Aboriginal consultation and environmental studies as eligible Canadian Exploration Expenses for both provincial and federal tax incentives. This eligibility was confirmed in January 2017 through the issuance of revised guidelines from the Canada Revenue Agency.
- BC Mining Flow-Through Shares (Individual Investors).
- BC Mining Exploration Tax Credit (Corporations)
- Mining Expenditure Review Table
Clarification regarding the eligibility of various expenses as Canadian Exploration Expense
- PDAC Super Flow-Through Shares page