A recent Mining Association of Canada (MAC) report estimates Canada’s provincial and federal governments may have collected an extra $1.5 billion in taxes and royalties from the sector in 2011 compared to 2010. Total payments reached a projected $9 billion in 2011. The rise occurred despite a reduced federal tax rate and
reflects heightened productivity and commodity prices.
The report, Revenues to Governments from the Canadian Mineral Sector 2002-2011, presents estimates for annual mineral-sector payments collected by Canadian
governments through corporate and personal income taxes, and the aggregate of royalties and mining taxes unique to each province. Its calculations do not
use data from 2011 tax returns, which will become publicly available in March 2013, but extrapolations from 2010 data guided by quarterly results in 2011.
According to the report, estimates for the overall value of mineral production in 2011 show a post-recession record of $50.3 billion. That is a 21 per cent
rise over 2010 levels, though the jump is smaller than the latter year’s sharp recovery from 2009.
And though the tax rate was lower, other factors affecting industry had a much larger impact on payments to governments. Lucie Chouinard, a Quebec-based
mining tax analyst with Deloitte, pointed out that the 2011 federal corporate tax rate cut deprived government coffers of just $27 million that year. The
rate came down to 16.5 per cent from 18 per cent in 2010.
“It was kind of a quiet year on the taxation front,” said MAC report author Neil McIlveen. “That particular reduction on the federal front was probably the
biggest one around, and it also was not really a surprise. It was part of a phase-down announced in 2007 by [federal finance minister Jim] Flaherty.”
The MAC report identifies the 2011 federal tax rate cut as the most significant policy change impacting payments federally, but does not focus on important
tax changes within individual provinces. In Quebec, for example, recent changes counter the federal reduction. Mining duties rose by four per cent in the
province over the last two years – a climb nearly mirroring the federal corporate tax rate’s descent of three per cent over the same period. Prior to 2010,
the last time mining duties rose in the province was in 1994.
If other provinces make good on their 2012 budgets, the spike in provincial mining duties could become more widespread. The finance ministers of both
Ontario and British Columbia have announced they will conduct reviews of the mining tax regimes in their provinces, according to Liam Fitzgerald, a
Toronto-based Pricewaterhouse Coopers mining tax lawyer.
The importance of provincial regulations should not be overlooked. “The mining duties [in Quebec] increase much more than the [federal] tax rate
reduction,” said Chouinard. “The impact [of provincial hikes] is much bigger for mining corporations [than federal reductions]. Of the complaints I hear in
the [general] population, I understand it’s not obvious that the mining duties have increased so much in Quebec. In fact, I think that in the population,
they still have the perception that the mining companies don’t pay any taxes.”
In her recent analysis of cash flows for a proposed Quebec mining project, Chouinard found that in relation to 2012 and future years, mining duties and
income taxes in the province represented “nearly 50 per cent of the profit of the mine.”