PDAC Makes Pre-Budget Proposals

— The following is an edited excerpt of the Prospectors and Developers Association of Canada’s (PDAC) pre-budget recommendations to the federal government.

Working with our members, the PDAC has developed several proposals as solutions to reduce the impact of the current financial crisis on the mineral industry in Canada, to retain our leadership position in global exploration and to ensure that the mineral sector is a major contributor to Canada’s economic recovery and continued growth:

• Encourage investment in Canadian projects by temporarily increasing the Mineral Exploration Tax Credit (METC) for exploration financed using flow-through shares from the current 15% rate to 30% for the next two years. And, to ensure longer term investment in Canada, and allow exploration companies to plan for the future, make the current 15% METC a permanent feature of the federal income tax system.

• Invest in transportation infrastructure (all-weather roads, bridges, road upgrades, as well as improvements to seaports and airports) in Canada’s North and remote regions of the provinces. All-weather roads, in particular, greatly improve the economics of exploration projects, increasing access and allowing for extended exploration seasons (i. e., adding months to exploration in those regions that only have access by winter roads).

• Create jobs and retain expertise in Canada’s world-renowned mineral exploration sector by maintaining a long-term commitment to the Geo-mapping for Energy and Minerals (GEM) infrastructure program.

• Reduce issuance and compliance costs associated with exploration companies. Improve an exploration company’s ability to retain employees by allowing issuance and compliance costs (costs associated with financing, legal and accounting expenses) to qualify for renunciation as Canadian Exploration Expenses (CEE) under flow-through share arrangements.

We believe these recommendations will have an overall positive impact on the economy without a significant cost to government. However, variations on these proposals, improvements to existing programs, or additional measures may be necessary.

Longer term: Maintaining a vibrant exploration sector

A vibrant mineral sector in Canada creates jobs, sustains communities, fosters new business opportunities and raises tax revenues that allow government to meet social needs. In the past few years, the federal government has responded positively to our sector’s recommendations through changes to tax policies and investments in specific programs.

Examples include the extension of the Mineral Exploration Tax Credit (METC) and the expansion of the Geo-mapping for Energy and Minerals program. In addition to the proposals noted above, the PDAC recommends the following policy initiatives as longer-term measures that are intended to support a strong investment climate for the mineral industry in Canada.

• The federal government, as part of a long-term strategy for mineral exploration, should clarify that the Canadian Exploration Expense (CEE) definition includes the costs of carrying out exploration at former mine sites that have not operated for at least five years.

Treating costs associated with these activities as CEE will promote mineral exploration in Canada in areas that might otherwise be overlooked because of uncertainty about the tax treatment of the expenditures incurred. An objective test for this eligibility would eliminate uncertainty in the application of the existing law, and encourage the discovery of new resources that could help maintain existing mining communities and revive ones that have low levels of activity.

• Allow specified costs related to the activities of a Qualified Environmental Trust (QET) to be eligible expenses that can be financed using flow-through shares (FTS). The benefit to governments of allowing FTS treatment for expenditures incurred at abandoned sites is that the cost of the program would be offset by the reduction and/or transfer of the government’s financial or environmental liabilities at abandoned sites to the private sector. There would also be benefits from increased economic activity and tax revenues associated with increased exploration and reclamation, as well as economic development and investment from potential discoveries, particularly in remote and Northern communities.