Metal mining tax peculiarities (2)

(Editor’s note: This column is the conclusion of a two-part review. In the first part published last month, the writer looked at the origins of mining

** taxes.) **

The catalysts for the major increases in provincial taxation of mines were 1) the 1972 federal tax removal of certain strong incentives that mining formerly enjoyed in Canada, and 2) the release of the 1973 report to the Manitoba government authored by former federal cabinet minister Eric Kierans recommending higher levies on mining companies as “economic rent,” which quickly became a political catchword.

British Columbia led the pack with an incredibly involved combination of mining tax, creeping averages and supertax. When I went out to review the draft late in 1973, I reported that it simply could not be administered, except at great cost and complication. It became law but was replaced not long after, which surprised no one.

Other province’s caught the scent and Ontario went to the fore with its spring, 1974, budget, which transformed the mining tax from a small but irritating one into a major tax burden, jumping from the $13-million range to some $160 million per year.

The tax structure was planned during 1973 based on 1972 and 1971 data. By the time the tax was under scrutiny during second reading, some 1973 data became available and industry pointed out that the tax take for 1974 would greatly exceed the treasury’s estimates. Allowances boosted

However, it was not possible, politically, to withdraw the announced tax rates, so the government gave relief by increasing the processing allowances generously. These allowances are large annual deductions from the tax payable, rewarding companies that operate processing plants for their Canadian minerals. An even greater deduction was now to be allowed for such plants if located in northern Ontario.

Incidentally, those with a northern Ontario viewpoint might also like to know that a most ingenious device was added to the mining tax in 1949 to help the Ontario gold- mining industry, which was in dire straits because of 1) the low priority it was given for equipment during the Second World War, and 2) the fixed selling price for the world’s gold decreed by the U.S. government (not abandoned until 1968).

Since base metal mines require enormous smelting/refining processing facilities worth hundreds of millions of dollars (on which the mining tax gave considerable relief by the processing allowances mentioned) and gold mines do not, the 1949 change deliberately “deemed” the ailing gold mines to have such plants and granted them a similarly generous processing deduction on those non-existent facilities. This device helped keep the fading gold- mining communities in northern Ontario alive until the price was freed in 1968. Unwritten practice

Curiously, this benevolent tax policy was not published by regulation under the statute but did become part of the Mine Assessor’s unwritten practice as authorized by cabinet. He eventually wrote it up and it was issued by regulation in 1975. The federal Emergency Gold Mines Assistance Act also helped the communities.

From 1974 to 1976, the bulk of the tax was paid by the base metal companies and a small amount by the iron and gold mines. However, by the late 1970s, the roles were reversed (except for iron) and this relative position continues to this day.

Naturally, the major new gold- mining companies at Hemlo, Ont., and other parts of Canada have intensified this major contribution by them to the over-all mining tax take, which is a reflection of their geological, mining engineering, metallurgical and financing knowhow and of the continuing strong free price of gold. Remember, the metal was only $103(US) per troy oz in August, 1976.

Over the years since 1974, the government has brought in changes that have eased the burden somewhat.

Nevertheless, I doubt whether Canada’s mining companies will ever echo the words of Justice Oliver Wendell Holmes: “I love to pay taxes. With them I buy civilization.” T. P. (Tom) Mohide, a former president of the Winnipeg Commodity Exchange, served as a director of mining resources with the Ontario Ministry of Natural Resources prior to his retirement in 1986.