Stay of execution still possible for flo-through funds

Members of the mining exploration community received some indication here last week that the federal government is about to back down from its plan to weaken flow-through shares.

Robert Jones, director of financial corporate analysis for Energy, Mines and Resources in Ottawa, told delegates of the 45th annual meeting of the Canadian Diamond Drilling Association that the government is committed to the plight of junior mining companies.

“Ministers have been shown how unemployment has gone down in remote areas of the country and the numbers are astounding. They appreciate the fact that people have been taken off the welfare rolls and have been put to work. The politicians I’ve talked to in Ottawa are sensitive to the issue of employment in northern communities and there is a certain urgency to make decisions in this regard.”

One of the national organizations which has lobbied hard in the past six weeks to have the current flow-through structure extended is the Canadian Save Flow-Through Committee (CSFC), chaired by Eveline Kasner of Kirkland Lake, Ont. She gave an impromptu speech to the diamond drillers, calling on them to go back to their employees and educate them about the benefits of flow-through and ask them to phone and write their members of Parliament.

“I feel confident now that the government will extend the 33 2/3% earned depletion allowance. We have gathered a lot of information and I think they (the government) were misinformed about the economic impact of flow-through, just like we were.”

The CSFC has raised $80,000, mainly from small businesses which reap the spin-off benefits of increased exploration activity in Kirkland Lake and Val d’Or, Que. The money is being used to fund a national lobbying campaign.

The province which has seen the most dramatic increase in exploration expenditure is Nova Scotia, which hosted the 3-day convention. Ten projects — all gold — are in advanced stages of exploration.

According to William Mundle, president of Logan Drilling, of Stewiake, N. S. the phasing out of earned depletion would mean a loss of 40 or 50 jobs. There are six diamond drilling companies in the province.

Under the current flow-through share system, each dollar invested by an individual in Canadian mining exploration provides a tax writeoff of $1.33.

The 33 2/3% depletion allowance was brought in by the Liberal government in 1983 in response to the 1981-82 recession. The result was a tax deduction in excess of the amounts actually spent by individual investors for exploration and development. Then in 1985 companies were given an extension to the end of February to spend money raised in the previous year.

Under tax reform, introduced by Finance Minister Michael Wilson in December, 1987, earned depletion is scheduled to be reduced to 16 2/3% by July 1, 1988 and to be eliminated completely as of Jan 1, 1990.