BC Tax Incentives for Mineral Exploration
British Columbia’s tax incentives for mineral exploration are available to individual investors as well as corporations, active members of partnerships and individuals conducting grassroots mineral exploration.
Individual Tax Credits – British Columbia Mining Flow-Through Share Tax Credit
A flow‐through share (FTS) is a share, or the right to buy a share, of the stock of a mineral resource company where tax deductions “flow through” from the company to the investor. A flow‐through share is issued under a written agreement between a corporation and an individual. Under the agreement, the individual agrees to pay for the shares, and the corporation agrees to transfer certain mining expenditures to the individual. Flow-through shares were originally introduced to address an exploration financing inequity which arose between major and junior exploration companies. Flow-through share investors can deduct their investments from otherwise taxable income.
The British Columbia mining flow-through share (BC MFTS) tax credit allows individuals who invest in flow-through shares to claim a non-refundable tax credit equal to 20% of their British Columbia flow-through mining expenditures.
Any unused credit at the end of a tax year may be carried back 3 years or forward 10 years.
British Columbia flow-through mining expenditures are specific exploration expenses incurred after July 30, 2001 and renounced by the corporation issuing the flow-through shares.
The expiry date for the BC MFTS tax credit is December 31, 2013. For more information, click here.
The BC MFTS has been harmonized with, and has been in addition to, the 15% federal Mineral Exploration Tax Credit. The March 2012 federal budget re-introduced the 15% credit for flow-through share agreements entered into before April 2013.
What does this mean for BC investors?
A BC investor, with taxable income of more than $113,805 and who invests $1,000 in flow-through shares, would receive tax credits and tax savings totaling $757 - partially offset the following year by $139 in taxes payable on the tax credits, for a net benefit of 62% of the investment. The tax benefits will vary dependent on the investor's marginal tax rate and jurisdiction of taxation. Currently, Quebec offers the largest potential tax savings for flow-through share investors because of its 150% tax deduction for qualifying exploration expenditures incurred in Quebec. BC still offers the best tax credit available in Canada.
Tax Deductions vs Tax Credits?
Eligible exploration expenditures have been 100% deductible against income from any source for over 20 years. These deductions shelter before-tax income. Tax credits apply directly to reduce taxes payable.
- A non-refundable tax credit reduces taxes to the extent of taxes payable.
- A refundable tax credit reduces taxes payable and then, if there is an excess, results in a cash refund.
BC MFTS and federal tax credits are non-refundable (the investor has to pay taxes in order to use the claim). However, unused credits can be carried back and applied against taxes paid in the previous three years or carried forward for up to 10 years; - or 20 years in the case of the federal tax credits earned after 2005.
Tax credits are considered “assistance” for income tax purposes and accordingly they reduce the Canadian exploration expense pool. Both provincial and federal tax credits reduce the pool in the year following the one in which they were claimed.
For more information on Flow Through Shares, contact the Canada Revenue Agency Mining Incentives technical help line at 604.666.8430.
Corporate Tax Credits – Mining Exploration Tax Credit (BC-METC)
Corporations, active members of partnerships, and individuals conducting grassroots mineral exploration in British Columbia may qualify for the Mining Exploration Tax Credit (BC-METC).
To be eligible, qualified mining exploration expenses must be incurred before January 1, 2017 for determining the existence, location, extent, or quality of a mineral resource in British Columbia. The credit applies to exploration for all base and precious metals, coal and some industrial minerals. For more detailed information on qualifying minerals, contact the Canada Revenue Agency at 1.800.663.1511.
The credit is calculated as 20% of qualified mining exploration expenses less the amount of any assistance received or receivable. Assistance includes reimbursements a taxpayer has received or is entitled to receive, as well as grants, subsidies, rebates and forgivable loans.
After February 20, 2007, an enhanced rate of 30% is available for qualified mineral exploration undertaken in prescribed Mountain Pine Beetle affected areas. The prescribed Mountain Pine Beetle affected area has been expanded effective December 1, 2008 (see details below for viewing the area). For more information click here.
Viewing the Mountain Pine Beetle Area
To view a map of the expanded qualifying Mountain Pine Beetle area, see the overview map. To view the Mountain Pine Beetle affected area on Mineral Titles Online, go to https://www.mtonline.gov.bc.ca/.
Scroll down, click on Mineral map or Placer map; select the zoom tool from the icon menu bar (plus sign magnifying glass); zoom to an area in the eastern portion of the province (scale needs to be magnified to more than 1:500,000); select LAYERS from the top blue menu bar; open up the ADMINISTRATIVE BOUNDARIES folder on the right hand side; then check the box to the left of the MOUNTAIN PINE BEETLE SALVAGE AREA; and click REFRESH map on the top blue menu bar. The Mountain Pine Beetle Area will appear as a brownish colour.
As of follow-up to our verbal submission provided on October 8, 2013 in Prince George, the Association for Mineral Exploration British Columbia (AME BC) is pleased to provide the Select Standing Committee on Finance and Government Services with recommendations for Budget 2014 that will attract investment, create jobs and build on BC’s great history and future of mineral exploration and development.
Read the full submission here.