Canada: Quebec Government Unveils Its Proposed Mining Tax Regime


During the last provincial elections in Quebec, the Parti Québécois, which now forms the provincial government, promised to change the mining royalties regime to ensure that all mining companies pay financial compensation on the mineral resources they extract. To fulfil this electoral promise and following lengthy private and public consultations, the Quebec government unveiled its proposal yesterday.

Current regime

Under the current regime, a mine operator must pay mining royalties amounting to 16% of its annual profit. The regime applies to each mine individually, so that a loss on one mine cannot be used to reduce the profit on another mine. The profit from a mine is determined based on the gross value of the mine's annual production and corresponds to the income received by the company from the sale of the ore extracted from the mine or any other product resulting from the processing of the ore, reduced by expenses and allowances attributable to the mine. The mining profit of a mine operator is calculated as the sum of the profits from each mine operated by the mine operator, net of certain expenses and allowances. The rate of 16% applies to the resulting profit, if any.

New mining tax regime

The new mining tax regime proposed by the Minister of Finance, Nicolas Marceau, is a hybrid regime. The first component consists of a minimum royalty (minimum mining tax) imposed on all mining companies, whether or not they are profitable, while the second component consists of a progressive mining tax. These amounts are not cumulative. Thus, a company must pay the higher of the two amounts.

Minimum mining tax

A minimum mining tax, or ad valorem royalty, will apply to all companies operating a mine in Quebec. The royalty will be calculated based on the output value at the mine shaft head and not on the gross value, as had been proposed in the document published by the government before last March's Forum on mining royalties (Forum sur les redevances minières). The output value at the mine shaft head will be calculated based on the gross value of annual output, net of processing costs. It is worth noting that the output value at the mine shaft head may in no case be less than 10% of the gross value of the annual output of the mine.

The applicable tax rate will be 1% in respect of the first $80 million of output value at the mine shaft head and 4% in respect of the value in excess of $80 million.

The minimum mining tax paid for a fiscal year may be carried forward and applied against the mining tax on future profit in the form of a non-refundable minimum mining tax credit. However, there will be a limit on how much of the amount carried forward may be used in a given year, to ensure that the company will always pay an amount of mining tax on its profit that corresponds to the minimum mining tax for that year.

Progressive mining tax on profit

The mining tax on annual profit will be based on the same tax base as is used to calculate mining royalties payable under the current regime. The applicable rates of tax will be progressive, according to the company's profit margin. The profit margin will be calculated by dividing the mine operator's mining profit by the total gross value of the annual output for all of the mine operator's mines.

Thus, the more profitable a mine operator is, the higher the marginal rate of tax on its mining profit. Currently, the tax is applied at a fixed rate of 16% regardless of the profit margin.

Coming into force

Most of the proposed measures will apply to fiscal years beginning after December 31, 2013. It should be noted that the draft presented yesterday does not have force of law, which requires a bill to be tabled in the Quebec National Assembly and passed by the legislature.

Ore processing

The government is proposing measures to promote the processing of ore by increasing the allowance for ore processing. When a mine operator carries on concentration operations in Quebec, the rate of the allowance applicable to eligible assets will be raised from 7% to 10% and when a mine operator carries on processing operations in Quebec, the rate of the allowance will be increased from 13% to 20%. The maximum processing allowance will increase from 55% to 75% of the mine's annual profit. In addition, the new regime will grant a 10-year tax holiday for large investment projects and an investment tax credit for manufacturing and processing equipment.

Reform of the Mining Act: environmental protection, social acceptance and transparency

The Quebec government used the occasion of yesterday's announcement to clarify its position on the reform of the existing Mining Act, particularly as regards financial guarantees for mine site restoration and enhanced transparency of mining operations. Based on the provisions of the draft regulation regarding mine site restoration that was published on February 13, 2013, the financial guarantee to be provided by companies will increase from 70% to 100% and will cover the entire mine site. The guarantee will also have to be provided during the first years of operation and not be spread over a period of up to 15 years, as is currently the case. In addition, in order to enhance transparency, the future Mining Act will require the annual amount of mining tax paid by each mining company and information concerning the number of tons of ore extracted to be made public.

As regards environmental protection, the future Mining Act will provide that the issue of mining leases will be subject to the prior grant of the requisite environmental authorizations. In order to ensure prompt processing of applications for environmental authorizations, an amount of up to $10 million will be devoted to bolstering the response capability of the ministère du Développement durable, de l'Environnement, de la Faune et des Parcs over the next 5 years.

Finally, the future Mining Act will contain new tools to ensure the social acceptance of mine projects, including the creation of follow-up committees and provisions to take into account the choices of regional county municipalities (RCMs) as regards mining operations in their territories.

A few figures

The government estimates that between now and 2020 the new mining tax regime will bring in between $73 and $200 million more annually than the current regime and that, from 2014 to 2025, the new regime will raise between $770 million and $1.8 billion more than the current regime would.

The document entitled "A new mining tax regime fair for all" published by the ministère des Finances et de l'Économie may be consulted here.

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