Tax breaks for mining companies in B.C. should be eliminated because they subsidize otherwise uneconomic exploration, according to a new University of Calgary report.
Jack Mintz, director of the school of public policy at the university and author of the report, told Business in Vancouver that generous provincial tax relief programs such as the mining exploration tax credit – which gives resource companies a standard 20% tax break for exploration activities and 30% for exploring forested areas destroyed by the pine beetle – are too charitable.
Currently, B.C. mining companies can write off 100% of new mine expenses such as capital expenditures and exploration costs. When combined with the extra tax credits, companies can claim 133% of new mine expenses.
Mintz said companies consequently become less exact in their pursuit of fruitful deposits.
"The problem is too much investment," said Mintz. "It leads to exploration in marginal places where the ore isn't as good. There are good deposits and there are lousy deposits. But when the government is picking up a sizable portion of the tab, economic returns become less of an interest."
Compounding the issue is the federally sponsored 15% mineral exploration tax credit. Under that program, oil and mineral exploration companies can pass the 15% tax break to investors through "flow-through" shares. The federal tax credit has been extended until the end of 2013.
"It's like you're running a business where you hire a new worker, write off their salary and then write it off again," said Mintz.
Mintz's findings are at odds with the goals of the B.C mining sector, where industry associations want to make provincial tax breaks permanent.
Gavin Dirom, president of the Association for Mineral Exploration British Columbia, said his organization is focused on lobbying the federal and provincial governments to ensure the tax credits remain dependable benefits for companies and investors, particularly during periods when investment is hard to attract.
B.C. mining companies raised $94 million in new capital in 2012, down from $3.3 billion in 2011.
"Generally, the markets are depressed. A bear market is exactly when this is needed. That would be a very positive sign for investment right now," said Dirom.
"It's good for business, and it's good for the economy."
He added that, if the tax breaks became permanent, a mandatory review every three or five years could ensure they were adjusted to reflect resource market fluctuations.
"The bottom line is jurisdictions around the world are competing for investors," said Dirom. "Taxation is right at the very top of how to compete."
