Queries Provincial taxes are highest in Ontario

How is mining tax (in particular, processing allowances) determined in the province of Ontario? Also, I have heard that the Ontario mining tax rate has recently been lowered by the provincial government. What are the implications of this change, and how does the Ontario tax rate compare to the rates levied in Quebec and British Columbia? M.S., Rouyn, Que.

Income derived from mining operations is generally determined by taking the gross revenue received on the sale of the output of the mine and deducting therefrom specified costs and expenses. These include: costs of production; most processing costs and transportation costs; depreciation at prescribed rates; certain exploration and development expenses; and processing allowances at prescribed rates.

No deductions are allowed for: interest expense and other financing charges; provincial mining taxes and royalties; royalties paid to resource owners; depletion; and certain administrative expenses not directly related to earning mining profits.

At the same time that it reduced the mining tax rates, the Ontario government announced adjustments to the processing allowances. These may be defined as special deductions to the industry for its investment in milling, smelting and refining facilities.

Originally processing allowances were intended to ensure that mining tax would be imposed only on profits from that extraction of ore, and not on profit from mineral processing operations. But now Ontario processing allowances act as an incentive for companies to establish new processing facilities in the province, particularly northern Ontario, and to increase the degree of processing achieved in Canada.

You should be aware that, even with the flat 20% rate, Ontario still has the highest mining tax of any province. By comparison, Quebec imposes an 18% tax on mining profits.

British Columbia is altogether a different story. There, what is known as a “mineral resource tax” is levied at 17 1/2% on mining profits from base metal mining operations. In the case of an individual (but not a corporation), no tax is payable on the first $50,000 of income. Each mine is taxed separately. (A separate 15% tax is applied under the B.C. Mining Tax Act to coal, sand, gravel and specified industrial minerals.)