Canada: Canada´s 2008 Federal Budget Includes Good News For Mining Sector

The February 26, 2008 Canadian federal budget did not contain much in the way of significant tax changes. Considering the track record of recent budgets, this is something of a relief. There were, however, a number of welcome proposals that affect the mining industry.

One clearly welcome proposal is the extension of the flow-through mining tax credit by another year. In addition, Budget 2008 provides a number of revisions to the "section 116" clearance certificate rules that have frustrated international investors in Canadian corporations. These are discussed in more detail below and may decrease the administrative headaches associated with investing into Canada.

Budget 2008 proposes certain improvements to the scientific research and experimental development (SR&ED) tax incentive program for qualifying Canadian-controlled private corporations. The Budget proposes to enhance the SR&ED tax incentive program by increasing expenditure limits and providing greater flexibility in respect of SR&ED performed outside Canada.

Budget 2008 also contains proposals to extend the scope of assets that are eligible for the enhanced 50% capital cost allowance rate provided in Class 43.2. This special class of CCA is available for certain clean-energy generation equipment (such as wind turbines and certain solar equipment). The expanded list of assets eligible for Class 43.2 will generally apply to assets acquired on or after February 26, 2008. It is worth noting that certain expenses in respect of Class 43.2 assets may be renounced to flow-through shareholders as Canadian exploration expenses.

Extension Of The Flow-Through Mining Tax Credit

Budget 2008 once again proposes to extend eligibility for the mineral exploration tax credit (sometimes called the "super flow-through share" program) by a year. The flow-through mining tax credit was introduced in October 2000 as a temporary measure to help promote mineral exploration in Canada. The tax credit has been very successful and has received several one-year extensions since then.

The flow-through mining tax credit is proposed to be available for flow-through share agreements entered into on or before March 31, 2009. By using the look-back rule in the Income Tax Act (Canada) (the Tax Act), funds raised with the credit during the first three months of 2009 can support eligible exploration until the end of 2010.

The flow-through mining tax credit provides a 15% non-refundable tax credit to individual investors. It is generally available in respect of certain "grass-roots" mining expenses that can be renounced as "Canadian exploration expenses" to flow-through shareholders under a flow-through share agreement.

Compliance For Non-Residents Disposing Of Taxable Canadian Property

Budget 2008 proposes a number of significant changes to the current compliance regime applicable to non-residents who dispose of certain property (referred to as "taxable Canadian property"), the income or gain from the disposition of which may be taxable in Canada. Most notably, taxable Canadian property of a non-resident includes unlisted shares of Canadian corporations.

Currently, to ensure that any Canadian tax liability of the non-resident who disposes of such property is collected, section 116 of the Tax Act generally requires the non-resident seller to notify the Canada Revenue Agency (CRA) of such disposition. Most importantly, the Act makes the purchaser liable to pay an amount to the CRA on account of the non-resident seller's possible Canadian tax liability, unless the purchaser obtains a clearance certificate from the CRA, the property is "excluded property" (including, generally, listed shares, units of a mutual fund trust, and certain types of indebtedness), or after reasonable inquiry the purchaser had no reason to believe that the seller was a non-resident of Canada. A purchaser that is faced with potential liability under section 116 will normally withhold a portion of the purchase price otherwise payable to the non-resident seller, pending receipt of the appropriate clearance certificate. To obtain a clearance certificate from the CRA, the non-resident seller is generally required to remit the appropriate amount to the CRA, post adequate security for any potential tax liability, or satisfy the CRA that no tax will be owing.

In the case of a non-resident who is resident in a country with which Canada has a tax treaty, most (albeit not all) of Canada's tax treaties would typically exempt a resident of that country from Canadian taxation on capital gains, except for gains on Canadian real and resource properties and shares of companies that derive more than half of their value from such properties. However, any exemption from Canadian taxation afforded by an applicable tax treaty is not currently taken into account under the existing section 116 regime. Therefore, for example, a non-resident who disposes of unlisted shares of a Canadian corporation that derive less than half of their value from Canadian real and resource properties is likely to face the prospect of a significant portion of the proceeds being withheld (and potentially remitted to the CRA), even if any gain realized on the disposition of those shares is exempt from Canadian taxation under the terms of an applicable tax treaty. The prospect of this withholding is often a significant concern for non-resident investors in Canadian enterprises, and the section 116 compliance regime has been subject to considerable criticism in recent years as the length of time required for the review of transactions and the issuance of a clearance certificate by the CRA has increased as a result of a severe administrative backlog.

Effective for dispositions that take place in 2009 and subsequent years, Budget 2008 proposes three significant changes in an attempt to "streamline and simplify" the compliance process that arises in this context.

First, the category of "excluded property" will be expanded to exempt from the section 116 compliance process the disposition of a property by a non-resident that is, at the time of its disposition, a "treaty-exempt property" of the non-resident. A property will be considered a "treaty-exempt property" of a non-resident at the time of its disposition if the income or gain from the disposition of that property by the non-resident would be exempt from tax in Canada because of a tax treaty in force at that time and, in the case of a disposition between related persons, if the purchaser sends a notice to the CRA, on or before the day that is thirty days after the acquisition of the property by the purchaser, setting out certain basic information about the non-resident seller and the transaction.

Second, the "reasonable inquiry" defence available under section 116 to purchasers of taxable Canadian property from non-residents will be expanded. As indicated above, currently the defence is only available if the purchaser, after reasonable inquiry, had no reason to believe that the seller was not resident in Canada. Budget 2008 proposes to expand this defence so that the purchaser would also be absolved from liability under section 116 if:

  1. the purchaser concludes after reasonable inquiry that the non-resident seller is, under a tax treaty that Canada has with a particular country, resident in that country;
  2. the property is a property any income or gain from the disposition of which by the non-resident would be exempt from Canadian tax because of a tax treaty if the non-resident were-because of the tax treaty referred to in (i.)-resident in the particular country; and
  3. the purchaser sends a notice to the CRA, on or before the date that is thirty days after the acquisition of the property by the purchaser, setting out certain basic information about the non-resident seller and the transaction.

In certain instances, a purchaser may simply be unwilling to take any risk arising from the interpretation or application of a particular relieving provision in an ostensibly applicable tax treaty and may, as a result, seek to withhold from the purchase price in order to protect itself. Therefore, as a practical matter, the most significant impact of the proposed changes to the section 116 compliance process may only be on related-party transfers. Whether this was intended or not is unclear.

Finally, a related change proposed by Budget 2008 is to exempt certain non-residents from filing a Canadian income tax return in respect of a disposition of taxable Canadian property. Currently, a non-resident is required to file a Canadian income tax return for any taxation year in which the non-resident (or a partnership of which the non-resident is a member) disposes of taxable Canadian property. This requirement is typically viewed by non-resident investors as an onerous feature of the Canadian tax compliance landscape, particularly in circumstances where no Canadian income tax would be payable because of, for example, the application of a tax treaty. Budget 2008 proposes to ease this burden by exempting non-residents from filing Canadian income tax returns for any taxation year in which the non-resident satisfies all of the following criteria:

  1. no mainstream Canadian tax is payable by the non-resident for the taxation year (including, it would seem, tax on the disposition of the taxable Canadian property);
  2. the non-resident is not currently liable to pay any amount under the Tax Act in respect of any previous taxation year (other than, generally, in respect of certain stipulated amounts for which the CRA has been provided with adequate security); and
  3. each taxable Canadian property disposed of by the non-resident in the year is either "excluded property" (which, as described above, will now include "treaty-exempt property") or a property for which the CRA has issued to the non-resident a clearance certificate under section 116 of the Tax Act.

The content of this article is intended to provide a general guide to the subject matter. Specialist 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.