After nearly eight months of uncertainty, the Québec
government finally unveiled its new mining tax regime during a
press conference held on May 6, 2013. The new regime will come into
force in January 2014.
A preliminary review of the new regime demonstrates that the
government has proven receptive to the concerns expressed by the
mining industry, which has been suffering from a decrease in metal
prices and a drop in investments over the last two years. In fact,
stakeholders in the Québec mining industry have been leading
an active campaign to raise public awareness regarding the negative
impacts that a significant hike in mining royalties would have on
the industry and on Québec’s economy.
The new tax hikes are more favourable to mining companies than
the tax increase originally contemplated by Québec’s
Minister of Natural Resources, Martine Ouellet. The
May 6 press conference was held jointly by Ms.
Ouellet and the Minister of Finance, Nicolas Marceau. During his
speech, Mr. Marceau acknowledged the change in circumstances and
the new difficulties facing the mining industry, including the
decrease in metal prices. In addition, he stressed that he had no
intention to harm investments by opting for an approach that would
be too demanding on stakeholders. These factors may explain why the
government revised its strategy and adopted tax hike rules not as
harsh as those initially announced by Ms. Ouellet.
The current mining tax regime applicable in Québec
functions solely on the basis of profits: there is a single tax
rate of 16 % applicable to profits generated by a mining
company. Under the current regime, no tax is due if the mine is not
However, under the new mining tax regime announced on May 6, all
mining companies will be required to pay a minimum tax, even in the
absence of profits.
The new mining tax regime is a hybrid one. A mining company will
be required to pay the greater of the following two amounts: (1) a
minimum mining tax regardless of the existence of profits; or (2) a
progressive mining tax on profits.
1. The minimum mining tax
The minimum mining tax is to be calculated as follows: a
1 % tax for the first $80-million on the output value at the
mine shaft head (“OVMSH”) and a 4 % tax on any
amount exceeding $80-million. The OVMSH is derived by taking the
gross value of the minerals extracted and deducting from it certain
eligible expenses and allowances, including certain expenses
related to extraction and marketing activities.
2. The progressive mining tax on profit
As for the progressive mining tax on profit, it is to be
calculated based on the mining company’s profit margin and
implemented at progressive rates, which are listed in the table
below. The details and the actual basis of such calculation will
need to be confirmed when the legislation implementing the tax
change is applied.
The tax to be paid = the greater of
Mining Tax on
First $80M of OVMSH(1)
OVMSH in excess of $80M
Profit margin of
Profit margin of 35-50 %
Profit margin of 50-100 %
(1) OVMSH = output value at the mine
shaft head, which is derived by taking the gross value of the
minerals extracted and deducting from it certain eligible expenses
(2) Profit Margin = Mining
company’s profit divided by the gross value of its annual
(3) Effective rates at the top of the
segment. The nominal applicable rates are, respectively, 16%, 22%
and 28% (Source: Gouvernement du Québec).
In order to encourage mineral processing jobs in Québec,
the new regime also provides for an increase in incentives offered
for processing of minerals in Québec.
Overall, the proposed changes to Québec’s mining
tax regime have taken into account the arguments and concerns of
the industry, and especially those of junior miners, which
constitute the majority of Québec’s mining exploration
firms. Although the rate hikes were not as harsh as feared by the
industry, they will need to be meticulously addressed by tax
advisers in order for their impacts to be as manageable as possible
for mining companies.
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