Ottawa doing away with CEIP

Less than two years after introducing its Canadian Exploration Incentives Program (CEIP), the federal government is eliminating the controversial scheme in an attempt to reduce the burgeoning deficit. In his recent budget package, Finance Minister Michael Wilson said the cancellation of CEIP is effective immediately and expenses incurred after Feb. 19 of this year will not be eligible for assistance under the program.

While industry sources said the announcement wasn’t entirely unexpected, the loss of CEIP will make it tougher for junior exploration companies to raise money.

“We are disappointed that the program is being eliminated particularly as it isn’t being allowed to run for the full two years,” said George Miller, president of the Canadian Mining Association.

When CEIP was introduced Jan. 1, 1989, to offer exploration financing assistance to the mining industry, via a grant of 30% of the cost of prescribed exploration expenses incurred under flow-through share agreements, the government said the program would be reviewed after two years.

It was widely regarded within the industry as a poor successor to the Mineral Exploration Depletion Allowance, which offered investors a tax writeoff of $133.33 on every $100 invested in flow-through shares.

“CEIP was one of those discretionary programs that was ripe for the picking,” said David Forster, a tax partner at Coopers & Lybrand in Toronto. He expects the elimination of CEIP, which cost $160 million to administer in 1989, to save the federal government about $75 million by 1992.

While companies can still claim until March 1, 1991, for expenses incurred under flow-through agreements filed before Feb. 20, the loss of CEIP may also cost jobs and reduce the amount of investment in junior exploration companies.

“Over the next two years, we will see some slackening in mineral exploration unless other sources of funds come to the fray,” Miller told The Northern Miner.

Nevertheless, he was pleased that Wilson didn’t tamper with current mineral development agreements between the federal and provincial governments or the geological surveys.

“The mining industry supports the overall thrust of the budget,” said Miller. “We shouldn’t be blind to the fact that Wilson has done what he said he would do.”