TAX ANGLES Quebec’s mining duty rebates apply to exploration

I ran into Charlie Wells at lunch time one day last week. “Barry, you’re just the man I’ve been looking for.”

“And I’m glad to see you, Charlie,” I responded somewhat warily, since Charlie runs a small exploration company and both he and his company are usually short of money.

“I’ve heard that you’re the person to see about extracting some cash from the Quebec government for exploration projects,” he said.

“Perhaps,” I replied, cautiously. “That depends on what you’ve been up to, Charlie.”

It turns out that his company has been concentrating on a property near Joutel, Que. They had some interesting holes, but not much else.

“What have you been using for money, Charlie?”

“Barry, we’re still running off that private placement back in 1987, but I have to tell you there’s not much left.”

I recalled that the private placement had been for $300,000 in ordinary common shares. Maybe there were possibilities here.

“What do you know about mining duty rebates, Charlie?”

“You don’t understand, Barry. We don’t have a mine, just an exploration play. We don’t pay mining duties.”

I began to regret that the Institute’s Rules of Professional Conduct do not permit charging contingent fees.

“Charlie, why don’t you buy me lunch and we can talk about it?”

Over lunch I explained that Quebec wanted to encourage exploration and development by companies that did not have sufficient mining income in the province to finance the costs and did not have flow-through funding.

In this case, Quebec provides accelerated mining duties’ relief by way of a duty credit in cash for allowable expenditures. This duty credit applies not only to exploration expenses but also to depreciable assets acquired and used in the operations.

All that is required is that the operator file a Mining Duties return, claiming the exploration expenses and depreciation on the fixed assets. When this results in a loss, there is a cash refund of 18% (the mining duties rate) of the loss.

This information was apparently of considerable interest to Charlie.

“And there are no annual minimums or maximums?”

“That’s right.”

“Good heavens (or something similar), how long has this been going on?”

“Well, the rules apply to expenditures in Quebec incurred after April 23, 1985.”

“You mean we can claim for all our Quebec exploration expenses for 1987, 1988 and 1989?”

“That’s right.”

I could see the wheels turning.

“Why that’s 18% of $200,000 or $36,000,” he calculated. “Let’s get at it. What do I have to do?”

I told Charlie to gather together his financial statements, and the details of exploration work done, and I would come over to help him fill out the returns, for our usual modest fee.

And Charlie did pay for lunch.006 Barry Dent is a tax partner in the Ernst & Young Mining Industry Group.