Federal budget contains no flow-through provision

Ontario Mines Minister Tim Hudak says he is disappointed by Ottawa’s decision not to enhance federal flow-through financing in the recent budget.

Currently, Canadian investors who subscribe to flow-through share issues may claim deduction of up to 100% of actual exploration expenses. Beginning in 1983, the federal government, under Pierre Trudeau, allowed an additional deduction of 33.3%. With this extra incentive in place, flow-through financing increased from $34 million in 1983 to a peak of more than $1.1 million in 1987, when the government, then under Brian Mulroney, began phasing out the enhancement. (The 133% writeoff was criticized by some economists as a “tax shelter,” and the phase-out occurred at the same time as the government’s overall program of tax reform.)

The proposal to restore the extra incentive was led by a coalition of Ontario-based industry organizations, including the Prospectors & Developers Association of Canada and the Canadian Diamond Drilling Association. Hudak says the government’s failure to do so shows that “the federal Liberal government failed to recognize the importance of mineral exploration as a key element of the mining industry, which helps drive the Canadian economy.”

He adds: “Companies wishing to explore potential targets identified in remote and underexplored areas would be better able to react if more investment was available.”

Exploration spending in Canada dropped to $320 million in 1999 from $580 million in 1996.

Flow-through financing in the 1980s led to the discoveries of the Louvicourt mine in Quebec, the Lindsley mine in Ontario, the Eskay Creek mine in British Columbia, and the Ekati diamond mine in the Northwest Territories.