NLIS 5 December 13, 2002 (Finance) Amendments to Mining and
Mineral Rights Tax Act Finance Minister Joan Marie Aylward has introduced legislation to amend the Mining and Mineral Rights Tax Act which will ensure that the province will derive fair and reasonable revenues from mining operations while maintaining a provincial mining tax regime that is competitive with other jurisdictions in Canada. This legislation is generic � it applies to all new mining projects in the province. It ensures that the province will receive reasonable compensa\tion for the mineral resources which belong to the people of the province. The legislation, introduced in the House of Assembly last night, also provides for a stable and predictable tax regime which is competitive with other jurisdictions in Canada. This is necessary to encourage exploration and development. The Mining and Mineral Rights Tax Act has been in place for 27 years. The basic structure of the act is not being changed. As indicated by the act�s title, there are two components to the tax, that is, the Mining Tax which applies to the mine operator, and the Mineral Rights Tax which applies to a person receiving mineral royalties which are based upon the value or quantity of production. This structure was implemented upon the recommendation of the Royal Commission on Mineral Revenue in 1974, and is designed to ensure that the province is reasonably compensated from those businesses profiting from the depletion of the non-renewable mineral resources which belong to the people of the province. The Mining Tax imposed upon the mine operator has two sub-components with each of these sub-components being taxed at different rates. A 15 per cent tax rate, referred to as the mining operations tax, is payable on a portion of the mine operator�s income. In addition, the mine operator is liable for a tax at the rate of 20 per cent on the remainder of income. This 20 per cent tax on the mine operator is referred to as the deemed mineral rights tax. The second major component of the tax is the Mineral Rights Tax. It applies at the rate of 20 per cent to a person receiving royalties from a mine operator or another person. There is a linkage between the 20 per cent deemed mineral rights tax payable by the mine operator and the 20 per cent mineral rights tax payable by the royalty recipient. If the mine operator pays a royalty, it is a deductible expense in determining the operator�s deemed mineral rights tax. This prevents double taxation of the same income. If the mine operator does not pay a royalty, he/she pays the full 20 per cent deemed mineral rights tax. In other words, a 20 per cent tax will be paid on a portion of the income from a mining project, either by the mine operator, a royalty recipient, or a combination of these. In addition to miscellaneous amendments to enhance administration, compliance and enforcement, a number of significant changes are being proposed to address deficiencies with respect to the Mining Tax and Mineral Rights Tax and to strengthen other provisions of the act to ensure the province�s competitive position is maintained. "The new Mining Tax Act will limit the Newfoundland and Labrador corporate income tax credit to $2 million for the first 10 years," said Minister Aylward. "This addresses concerns with the so-called tax holiday introduced in 1994, while still maintaining the province�s competitiveness with other jurisdictions." Under the current legislation, there is no limit on the corporate income tax credit for the first 10 years. Modifications are also proposed in relation to the calculation of the processing allowance in order to encourage concentrating, milling, smelting and refining in the province. The current act provides for a minimum processing allowance of 15 per cent of net income, whether or not the mine operator actually undertakes processing. This minimum processing allowance will be eliminated under the amended legislation. Further, the act is being amended so that only those processing assets which are located in the province are eligible for the processing allowance. "The amendments also provide incentives to encourage exploration," noted Minister Aylward. "Most significant is the implementation of a tax-free threshold of $100,000 annually on royalty income, with that relief being phased out by the time royalties reach $200,000. This will help ensure that prospectors who discover minerals receive a reasonable return on the find if their rights are sold for royalties." As another incentive for exploration, exploration expenses will be included as an eligible deduction in calculating the Mineral Rights Tax. Amendments to the legislation also strengthen and clarify provisions with respect to the treatment of transactions between related parties; non-deductible cash payments made under impacts and benefits agreements; deductibility of royalties payable by mine operators; and, deductibility of certain expenses related to mine reclamation. Also, the current act restricts the carry forward of unused exploration expenses to a five-year period. This five-year restriction is being removed. "The amendments to the Mining and Mineral Rights Tax Act will increase revenues while maintaining the province�s competitive position, and will encourage exploration and processing, supporting growth within the industry from the grassroots level up," said Minister Aylward. Media contact: Josephine Cheeseman, Communications (709) 729-0329.
BACKGROUNDER Amendments to the Mining and Mineral Rights Tax Act Amendments to the Mining Tax include:
Amendments to the Mineral Rights Tax include:
Following is a description of some of the major features of the new tax regime. MINING TAX Corporate Income Tax Credit
Processing Allowance
Eligible Deductions:
MINERAL RIGHTS TAX Net Smelter Returns Royalties and Other Royalties
Tax Free Amount of Net Smelter Returns Royalties
Exploration
2002 12 13 4:00 p.m. |
||
|