Prospectors criticize tax reform

Proposed tax reform by federal finance minister Michael Wilson which would see the elimination of flow-through funding at the end of 1989 is a “serious over-reaction,” says the Prospectors and Developers Association of Canada (pdac).

“The tax reform measures announced by Wilson on Dec 16, fall far short of what was required to maintain flow-through in a viable form,” the pdac says in a release.

“Wilson’s decisions in this regard represent a serious over-reaction which, when combined with the present stock market conditions in particular, will impose major constraints on the ability to raise risk capital for mineral exploration in Canada.”

Currently proposed by Ottawa is reducing the rate of depletion from 33 1/3% to 16 2/3% on July 1, 1988, and eliminating flow-through completely on Dec 31, 1989. (Flow- through allows investors in junior exploration mining firms certain tax deductions; currently, each dollar spent on exploration entitles the investor to a tax writeoff equivalent to $1.33.)

In Quebec, the provincial government is planning to introduce legislation, effective July 1, 1988, which would entitle investors to claim a 33 1/3% rate of depletion, until Dec 31, 1989, for money invested in mining exploration. (In other words, Quebec would negate the federal proposal to reduce the rate to 16 2/3%.)

According to the pdac, flow- through financing has helped create jobs and stimulate the economies in northern resource-based communities.

Should the proposed federal changes become law, the pdac predicts many junior companies which rely exclusively on equity financing will be forced out of the market, and projects which have been brought to the advanced stage of exploration will be vulnerable to postponement or cancellation.

While commending the Quebec government for its decision on flow- through, the pdac says it is concerned Ottawa’s position on the matter “could result in an unhealthy, provincial Balkanization of the Canadian exploration industry.”