Qubec lowers financial incentives for business
In order to lessen government spending and reduce the role played by the government in the Qubec’s economy, the Liberal provincial government introduced several cost-cutting measures this past June in their first budget since coming to power. Among the more noteworthy measures is a 25% reduction in tax credits and tax holidays for businesses.
While this move has received support from fiscal conservatives–it is estimated to save the government more than $200 million annually–it will affect all businesses in Qubec. For the mining and exploration industry, these cuts to credits have removed some of the shine meant to encourage mineral exploration and mine development. Those credits affected include flow-through shares, refundable tax credits for exploration companies and producers and credit for northern areas. All other remaining incentive and tax rates have been unaffected. Even with the cuts, Qubec still has the best incentives program in the country.
Flow-through shares have been an attractive incentive for both investors and junior exploration companies since the early 1980s. The shares allow junior companies to incur exploration and/or development expenses and “flow” the tax benefits or deductions of these expenses “through” to their investors. Previously, investors from Qubec could benefit from a tax deduction amounting to 175% of their investment in flow-through shares. This deduction was composed of a 100% basic deduction of the cost of flow through shares issued to fund eligible Canadian exploration expenditures, a 25% deduction for junior company incurring exploration expenditures in Qubec and an additional 50% deduction if the exploration is conducted from surface.
As a result of the new budget, flow-through share tax incentives have been extended to December 31, 2004 but at a lower rate. The maximum total deduction for flow-through shares has decreased by 25% to 131%. For a taxpayer in the highest tax bracket, the net cost of a $1,000 investment in flow-through shares in 2002 amounted to $224. In 2003, the same individual with the current federal and provincial incentives would pay $330.
Similarly, the Refundable Tax Credit for Resources, a new incentive that was announced last year, has been cut by 25%. The refund or credit rate has been lowered to 15% from 20% of eligible expenses for producers and from 40% to 30% of eligible expenses for non-producers. For companies operating in the Near and Far North regions, the additional 5% credit has been cut to 3.75%. As a result, a non producer operating in the Near of Far North regions will see a credit of 18.75% instead of the 25% credit seen in 2002 and producers operating in the same region we see their credit drop from 45% to 33.75%.
|Refundable tax credits in Qubec|
|Refundable credit for resources (30% x 100)||$30.00||$40.00|
|Refundable credit for northern area (3.75% x100)||$3.75||$5.00|
|Refundable credit on duties (12% x 100)||$12.00||$12.00|
|Total tax savings for the company||$45.75||$57.00|
|Net cost of exploration expense||-$54.25||-$43.00|
Net cost of $100 spent on mineral exploration in Quebec by an exploration company in the Northern regions, after tax credits