Editorial Mining Tax Act a big step ahead

The following guest editorial was written by Patrick Reid, executi ve director of the Ontario Mining Association, and concerns a bill to amend Ontario’s Mining Tax Act.

Just days ago, the Ontario legislature gave third reading and roya l assent to Bill 189, an act to amend the Mining Tax Act. Since 1974, when Ontario introduced its severely graduated mining tax system, the Ontari o Mining Association has repeatedly asked the treasurer and the legislature to right the wrongs they did. Those were the days of the Club of Rome and so-called windfall profits. The mining industry has been suffering from these actions ever since. Most of Canada’s other major mining provinces have amended their legislation by removing graduated taxes and onerous or super royalties.

In 1985, the Ontario Mining Association, in a pre-budget submission to Treasurer Robert Nixon, outlined the reasons why the 1974 legislation was damaging to the industry.

The OMA stated that the 1974 Act resulted in Ontario having the high est potential level of mining tax in Canada. The top mining rate of 40% (subsequently reduced to 30%) combined with effective federal and provincial income taxes of about 36%, left Ontario with a maximum marginal tax rate on mining companies of about 66%.

This discouraged investors and investment in the mining industry bec ause it did not leave enough money in the good years for the mining companies to pay down their debts and survive during the period of the down cycle. As well, investors perceived that the government was taking too big a tax bite and not leaving enough for future development and dividends to shareholders. The rates, as structured, were unfair to companies with large capital investments because the rate was calculated on their profits and had no relation to the actual return on investment that was earned.

The treasurer responded in his 1985 budget by changing the graduated rates, which ranged from 15% to 30%, to a flat rate of tax of 20%. At the same time, he announced adjustments to the processing allowances which are special deductions to the industry for its investment in milling, smelting and refining facilities.

The Ontario Mining Tax Act is designed to tax mining profits only an d the processing allowances are an arbitrary method of excluding processing profits not subject to tax. These processing allowances were decreased to make the mining tax changes revenue neutral. This meant that there would be no loss of revenue to the treasury and as far as the industry was concerned, while there would be some redistribution of the tax burden, no one would be adversely affected in a material way.

It meant, from the treasury’s point of view, that they would continu e to receive on average from $55-$60 million in mining tax per year, this of course, being in addition to the normal federal and provincial corporate income taxes payable by the industry.

Bill 189 is also an attempt to streamline and simplify the Ontario M ining Tax Act which is still very complicated and efforts are to continue to simplify its provisions and implementation. A major step forward has been the transfer of the administration of the act to the ministry of revenue. The bill has also reduced the discretionary powers under the act and will make administration less arbitrary and more reasonable and certain.

The new Mining Tax Act is a major step forward in resolving some outstanding complaints of the Ontario mining industry relating to rates of tax, equity and fairness, perception and administrative problems.

The Ontario government is to be commended for its open and consultat ive approach in bringing about mining tax reform.