Canada: 2012 Federal Budget Proposals Applicable to Mining Companies

Environmental Proposals

The 2012 federal budget (the "Budget"), released last Thursday, promises legislative changes to the Canadian Environmental Assessment Act (the "CEAA") that will streamline the federal environmental assessment ("EA") process. The central purpose of the proposed changes is to implement a "one project, one review" process, with emphasis on reducing the red-tape and time associated with federal environmental approvals for "major economic projects" (a designation that is not yet defined but is likely to include mines that meet certain criteria). The Budget dedicates new money to the Major Project Management Office, to facilitate its mandate of assisting the proponents of major projects through the federal regulatory approval processes. In March 2012 alone, three new mining proposals were added to the list of projects that the Major Project Management Office will assist.

The streamlining of federal environmental approval processes for major projects will be accomplished by implementing the following priorities:

  • Eliminating the need for a federal EA review for smaller projects that create little or no risk to the environment;
  • Committing $13.6 million over two years to support consultations with Aboriginal peoples;
  • Setting fixed, clear timelines for the EA process, including maximum periods of 24 months for Panel Reviews and 12 months for a standard federal EA; and
  • Committing $54 million over two years to the Major Project Management Office Initiative.

Smaller and Mid-Size Projects

In addition to emphasizing major projects, the Budget also bodes well for smaller mining projects or smaller components of mining projects that frequently require provincial EA approvals. To keep its promise to redeploy federal resources to focus on major projects, the Canadian government will need to shift environmental regulation of smaller projects to the provinces. This shift will introduce the concept of equivalency, where comparable provincial approvals will be deemed to satisfy the requirement for a federal approval. Equivalency will help alleviate duplication of environmental review by multiple jurisdictions and should reduce the number of projects requiring a joint Federal-Provincial EA.

Also of note, the Budget promises to amend the Metal Mining Effluent Regulations to allow for some discharge of effluent from non-metal diamond and coal mines into certain bodies of water.

Tax Proposals

The Budget proposed two changes to the Income Tax Act (Canada) that specifically relate to mining corporations.

Mineral Exploration and Development Tax Credit

The Budget proposes to phase out the corporate tax credit for pre-production mining expenditures. Generally, the current rule allows corporations to claim a 10% credit for certain expenditures incurred for the purpose of:

  • determining the existence, location, extent or quality of a mineral resource in Canada ("Exploration Expenses"); and
  • bringing a new mine into production ("Pre- Production Development Expenses").

The credit is only available in respect of minerals that are diamonds, base or precious metals, and industrial minerals that become base or precious metals through refining.

This credit remains unchanged for expenditures incurred in 2012. However, the Budget proposes to reduce the available credit for Exploration Expenses to 5% for expenditures incurred in 2013. Thereafter, no credit will be available for Exploration Expenses. The credit for Pre-Production Development Expenses will remain at 10% for expenditures incurred in 2012 and 2013, but will be reduced to 7% for expenditures incurred in 2014 and to 4% for those incurred in 2015. No credit will be available for expenditures incurred thereafter.

Some transitional relief is available in respect of certain expenses agreed to or contemplated before the date of the Budget.

Mineral Exploration Tax Credit for Flow-Through Shares

In addition to deducting Canadian exploration expenses, individuals who invest in flow-through shares are entitled to a 15% tax credit for certain specified exploration expenses renounced to them. This measure was originally introduced in the 2000 federal budget as a temporary measure to encourage and support access to capital for mining corporations.

Past budgets have the extended temporary credit on an annual basis. In keeping with this, the Budget proposes to extend this tax credit for one year. Accordingly, flowthrough shares issued pursuant to renunciation agreements entered into before April 1, 2013 will qualify for the credit. Given the "look back" rules applicable to flow-through shares, the issuing corporation would have until the end of 2014 to make the requisite qualifying expenditures.

Other Tax Proposals

The Budget also proposed a number of tax changes applicable to all corporations, including mining corporations. Of these, the following two are potentially particularly significant to mining companies.

Thin Capitalization

The "thin capitalization" rules limit the amount of interest that may be deducted in respect of debts owing by a Canadian corporation to certain non-resident lenders, generally lenders who own more than 25% of the votes or value of the Canadian corporation, or who do not deal at arm's length with such a shareholder. Currently, a portion of a Canadian corporation's interest deduction will be denied where the debt owing to such lenders exceeds a 2:1 debt to equity ratio. The Budget proposes to reduce this ratio to 1.5:1.

Foreign Affiliate Dumping

The Budget also introduced a new set of rules applicable to Canadian corporations controlled by a non-resident corporation. Generally, where such a Canadian corporation makes an investment in a foreign affiliate, the Canadian corporation may be deemed to have paid a dividend to its foreign parent. The deemed dividend would be subject to Canadian withholding tax. Where shares of the Canadian corporation are issued as payment for the foreign affiliate investment, a deemed dividend will not arise but rather the paid-up capital of the shares will be reduced. An investment in a foreign affiliate is defined broadly to include an acquisition of shares or debt of a foreign affiliate (including options to acquire such shares or debt) as well as capital contributions made to the affiliate. The Budget provides an exemption from this rule where the transactions in question satisfy a business purpose test.

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.