PDAC urges fair taxation for exploration financing

The federal government must stop discouraging investment in the mining exploration industry, says the Prospectors and Developers Association of Canada (PDAC). The Toronto-based mining association is urging its followers to write not only to their MPs, but to politicians at the provincial and municipal levels.

In a brochure carrying the headline “Federal government threatens entire Canadian mining industry,” the PDAC says Finance Minister Michael Wilson’s last budget severed the mining industry’s lifeline to exploration financing.

The government at that time brought an abrupt end to the Canadian Exploration Incentive Program (CEIP), a grant scheme aimed at raising flow-through financing for the mining exploration. CEIP was the short-lived replacement for a depletion allowance incentive program. Both schemes provided investors with tax deductions above the dollar-for-dollar flow-through- share writeoff which remains in place.

Without either of these programs, “the exploration investments known as flow-through shares are fully exposed to unjustly severe tax rules, making them unmarketable. The junior resource sector is now in grave peril.”

The PDAC argues it takes about 12 years to explore, discover and develop new mineral deposits. Federal government figures, it says, indicate $1.3 billion is needed annually to sustain the country’s current reserves.

“If flow-through shares remain unmarketable, exploration expenditures won’t reach even one-third of the required amount,” says the PDAC. “Our exports will decrease and Canada will lose its position as a world leader.”

The PDAC is advocating fair taxation on the sale of flow-through shares. Investors, the association says, are currently taxed as if a flow-through share cost nothing so that the total proceeds from the sale are all capital gain. In calculating tax, the investor should be allowed to use the actual or real after-tax cost, the PDAC argues.

“Canadian prospectors and miners don’t need handouts to make flow-through shares work — only fair taxation,” the PDAC says.