Finance Committee on Oct. 31st, 2012

[Ted Cook]

This measure would phase out the corporate tax credit for pre-production mining expenditures. The way the phase-out works is that it is divided into two types of expenditures. One is the pre-production exploration expenditures, which we can think of as the grassroots, actual exploration-type expenditures. The other type of expenditure is the actual development expenditures, such as removing overburden and that kind of thing.

For the exploration expenditures, the 10% rate is reduced to 5% for 2013 and then the credit is not available after that.

For the development expenses, the rate is 7% in 2014, 4% in 2015, and then it won't be available in the years subsequent to that.

[Hoang Mai, NDP, Brossard—La Prairie, QC]

Could you tell us about the regions of Canada that this measure will affect more?

[Geoff Trueman]

The measure is available to mining companies generally, so to the extent that mining activity occurs across Canada, the measure would affect most regions.

[Hoang Mai, NDP, Brossard—La Prairie, QC]

You have not studied the precise effect of this measure or the current number of applications? Is there a variation between regions?

[Geoff Trueman]

When we look at the measure, we would look at the impact on the mining sector overall. We would certainly be cognizant of the fact that mines may be located in remote or rural regions in Canada, but most parts of Canada do boast some mining activity.

[The Chair, Conservative, James Rajotte]

With four minutes left, go ahead, Ms. Nash, please.

[Peggy Nash, NDP, Parkdale—High Park, ON]

What has been the cost per year of this tax credit that is being eliminated?

[Geoff Trueman]

The average of the cost over recent years has been in the range of $20 million per year.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Can you tell me where the decision came from to do this? Was there an industry consultation, or was a study done? I'm wondering how the decision was made to change this.

[Geoff Trueman]

The tax system is subject to ongoing policy review. As far back as 2006, the government indicated that it wanted to look at ways to make the tax system more neutral across sectors. We've seen certain rationalization measures in recent budgets, such as the phase-out of tax preferences to oil sands producers in budgets 2007 and 2011, and then this measure phasing out a preference for the mining tax sector.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Thank you.

[The Chair, Conservative, James Rajotte]

Go ahead, Mr. Brison, please.

[Scott Brison, Liberal, Kings—Hants, NS]

Further to Mr. Mai's question, there has not been an impact analysis of this change in terms of regions, has there?

[Geoff Trueman]

It's fair to say that we look at the fiscal impact and we take into consideration the economic impact across the mining sector. That would include where the incidents may lie across the country.

[Scott Brison, Liberal, Kings—Hants, NS]

The reason I ask is that this is for fairly early-stage activity. The reality is that this is a challenging time in terms of mining financing in Canada. Over the last five years, 80% of the mining deals in the world have been transacted in Toronto, so we're pretty good at financing mining activities, but this is a challenging time right now, which is why I raise it. I represent a rural riding, and one of the opportunities we have is in early-stage mining activities.

Was there any analysis done of the multiplier effect, and...?

How much will this save the government, based on take-up of this in the past?

[Geoff Trueman]

The fiscal impact is in the budget. I believe the numbers are, for the mineral exploration tax credit, starting at $10 million in 2013-14 and ramping up over the next two fiscal years to $25 million per year and then $30 million per year.

Certainly in terms of mining financing and incentives, I would note that budget 2012 did extend the mineral exploration tax credit. That's the incentive that goes to investors in flow-through shares. That's certainly one of the key mechanisms that underpins the exploration spending in Canada.

[Scott Brison, Liberal, Kings—Hants, NS]

It certainly is an important one. I agree with that.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Brison.

Mr. Trueman, could I get you to explain something? I'm sure that members of this committee are aware, but just for the record, because some members who are not on the finance committee are saying, “I thought the government extended this one, but it's different”, could you briefly explain the difference?

[Geoff Trueman]

Sure.

The measure I just referred to, the mineral exploration tax credit, is an incentive that goes to the investors who purchase the flow-through shares of mining companies. The corporate mineral exploration and development tax credit is the measure that is being eliminated. That is a tax credit that goes to the corporation itself, not to the investors in the shares of the corporation, so one is directed on the corporate side and one goes to the purchasers of flow-through shares.

[The Chair, Conservative, James Rajotte]

Thank you very much for clarifying that.

We'll go back to Mr. Brison, please.

[Scott Brison, Liberal, Kings—Hants, NS]

Thank you.

Mr. Trueman, you said you've studied the impact on the industry, so you have the information on that. Could you share that with the committee?

[Geoff Trueman]

The measure applies equally across Canada to mining activities, so there's no differentiation in terms of the region or the type of mining activity that's affected.

[Scott Brison, Liberal, Kings—Hants, NS]

But it would probably have, for instance, a lesser effect on Scarborough, as an example, than it might have on a riding in northern Quebec or in Labrador. It would be helpful to have.... You have some of that information in terms of regional breakdown.

[Geoff Trueman]

We don't do a specific analysis that allocates a dollar amount to a particular region. We examine the measure overall, and certainly the mining industry, as you say, is in most parts of Canada. It's important to remember that. Of course, as you say, the financing activity does take place in large urban centres, but mining is an integrated industry. It will have an impact across the country.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Brison.

As per our agreement earlier, I will move back to the motion presented by Ms. Glover.

With the committee's consent, I think I'll excuse our officials. I thank them very much for being with us here today. We'll obviously continue tomorrow from where we left off. Thank you for being with us. We will see you tomorrow.

Colleagues, returning to the motion, I believe Mr. Caron had an amendment with respect to this motion.