Liberals set to change Ontario mine tax rate

A bill to amend Ontario’s Mining Tax Act was expected to become law at presstime. The bill would eliminate the current graduated tax of up to 30%, which is imposed on mining profits, and replace it with a flat 20%.

Last week, in the Queens Park legislature, the bill received second reading, which is approval in principle.

The proposed legislation already has the approval of the Ontario Mining Association (although it prefers an even lower flat rate). In a 1985 budget submission to the Ministry of Revenue, the oma argued that the graduated tax rate was hurting the mining industry. Treasurer Robert Nixon then announced, in his first budget, that Ontario would move to the flat 20% rate, effective April, 1986, oma Executive Director Patrick Reid said.

“It’s a big improvement over the current graduated rate,” Mr Reid told The Northern Miner. “The new rate will leave more money with the companies so that they can pay off their long-term debts. It will also make it easier for companies to raise investment funds. People want a reasonable return on their money. But with the (current) tax rate, there’s a perception that the government is getting it all.”

At the same time, Mr Nixon is attempting to reduce, by a small amount, the benefit to the industry of the “processing allowance.” The allowance is based on the capital cost to the operator of the its processing assets and varies depending on the degree of processing and its location. Processing is defined as any form of benefication, concentrating, smelting, refining or semi-fabricating of a mineral.

Mr Nixon says the 20% rate will make Bill 189, as it is called, “revenue-neutral.” In other words, it would maintain the same level of revenue (roughly $55-$60 million) as has been received from mining tax over the past 10 years. “Basically what happened is that the treasurer gave with one hand and took a little with the other,” Mr Reid explained. “He brou ght down the top marginal tax rate of 30%, making it a flat 20%. But he also notched down the processing allowances, which are benefits to the industry.”

Even with a 20% rate, Ontario would have the highest mining tax of any province. By comparison, Quebec imposes an 18% tax on mining profits. Exemption

“Although the 20% flat rate is the highest in the country, our base has been substantially adjusted,” Mr Nixon said in the legislature. “We’re very pleased to exempt the first $500,000 of mining profits. That means the small or beginning operations have a chance to become established and put some money in the bank for their payments and expansion, before we hit them with this 20% tax.”

He said the bill is designed partly to improve the administration of Ontario’s Mining Act. (A revised mining act, more than 10 years in the making, has been approved in principle and is expected to be re-introduced to the legislature sometime this year, according to Edward Freeman of the Ministry of Northern Development and Mines’ communications branch). The bill is also aimed at making it easier for entrepreneurs and investors to understand the tax rates, Mr Nixon said, as well as providing an incentive to the mining community while maintaining the same level of revenue as before.

“We recognize the fact that a person who takes a chance on mineral exploration and development has to at least see the prospect of a reasonable profit. These people must have something which compensates them for the chance they take and also for the money they invest. This bill does that.”

He added that “even the hard- headed entrepreneurs and business people understand that people in the mining business should be paying their fair share of taxes.” Break for base metals

Responding to a question from MPP George McCague (pc Dufferin-Simcoe), Mr Nixon said he is not prepared to produce a list of the effects which the new tax rate would have on specific companies or types of mines. “But I’m informed that, if anyone, the base metals mines will get a bit of a break and that the high-profit gold mines will be paying an additional amount,” he said. The reason is that base metals operations are to pay a lesser amount on the basis of a processing allowance which is somewhat more generous than that granted to gold operations.

The Progressive Conservative Opposition voted in principle for the bill despite unsuccessful attempts to amend the 20% tax rate, first to $1 and then to 18%. The New Democratic Party, on the other hand, voted against the bill.

“It’s interesting that the Opposition believes we’re attempting to extract too much money from the mining economy and that the ndp believes that natural resources should be nationalized and that we’re not taking enough money,” Mr Nixon said. “I would say the Liberals have it just about right.”

Michael Harris (pc Nipissing) described the bill as dissapointing. “It’s not an important change, considering that it has been two years in the making. It’s just a little bit of fiddling here and there.” He added that mining companies in Ontario would be more competitive if they didn’t have to pay any tax.

Mr McCague agreed: “The ideal situation would be to drop the mining tax and allow the companies to use those funds for exploration, for new technlogy and for the creation of jobs in general.” Not enough revenue

Taking a different view, James Foulds (ndp Port Arthur) argued that not enough revenue would be generated by the bill. “It is a principle which we, in British Commonwealth countries, have inherited — that the taxation of resources is a legitimate activity of government because the resources of a country or province belong to all of the people. The people of a province should be getting revenue from a resource which is theirs and which is being exploited and exhausted.”

The same argument was presented by Gilles Pouliot (ndp Lake Nipigon). “The people of the north are not going to come back, year after year, cap in hand, to ask the government for what is justly theirs. Somewhere down the line a different philosophy or approach will become the order of the day, so that the people of the north will finally stop begging and will get some of the money that was theirs in the first place.

“The treasurer has inherited a can of worms and a distortion of the highest order,” Mr Pouliot said, referring to the the province’s mining tax rates. “Take the situation in Hemlo. Lac Minerals alone, starting in the spring, will receive from the Page-Williams mine $1 million per day. But in terms of essential services, such as sewer, water and recreational facilities, not five cents will go back to the municipalities. This is an injustice and it should be rectified.”