Finance Minister Michael Wilson’s white paper on tax reform retains the concept of flow-through share financing for mineral exploration, but in a less generous form.
Under current flow-through rules, each dollar invested by an individual in Canadian mining exploration provides a tax writeoff of $1.33. The white paper calls the end of “earned depletion allowance,” which provides a tax write-off in excess of the amounts actually spent for exploration and development. (The allowance is so named because it recognizes the depleting nature of a mining operation’s raw material).
The rate at which depletion can be earned would be slashed to 16 2/3% from 33 1/3% by July 1, 1988. It would be phased out completely as of July 1, 1989. In other words the total tax write-off would be cut from the current $1.33 to $1.17 by July 1, 1988, and to one dollar by July 1, 1989.
Tax reform will also see the average tax rate for mining rise to 16.6% from 15%. Some bad news is that the proportion of mining income taxed will be expanded, to almost 64% from about 50%.
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