Metal mining tax peculiarities (1)

Oh, how we hate to pay taxes. Even so, some taxes make us angrier than others.

Revolutionary changes took place in the taxation of the mining industry in Canada in 1973 and 1974 and the effects are still with us. What happened, exactly?

To comprehend this fully, one must first look at the origins of the vexed question of mining taxes.

“Silent Frank” Cochrane of Sudbury is credited with the creation of this tax on mine profits in Ontario in 1907, then called the Supplementary Revenue Act and later the Mining Tax Act. It levied a 3% tax on mine profits over $10,000 per year. As minister of lands and mines, he was carrying out the stated political objective of the Ontario premier, J. P. Whitney: “to enlarge the people’s share” of the province’s natural resources.

Cochrane had already put through a revised Mining Act in 1906, which, inter alia, provided for regional mining recorders of claims, whose decisions could be appealed to a newly created, completely independent, quasi-judicial officer called the Mining Commissioner, or to the courts, which continues to this day. Provincial royalty

Between 1907 and 1915, the province took in some $3 million in royalties, as well as $1.3 million in mining tax — double taxation, in fact. With the decline of the Cobalt camp, royalties were reduced after 1911 and later abolished, but the Mining Tax Act remained. It was a price to be paid to the province for the resources removed, but calculated on profits.

A number of provinces modelled their taxation of mining on the Ontario system.

For the 66 years from 1907 on, the Ontario tax was regarded by the mining industry as a nuisance tax, small but of sufficient size to be an irritant. The dart in the bull’s back was the “discretionary,” perhaps arbitrary, power of decision on what a mine had to pay, given to a civil servant called the Mine Assessor.

Assessors of mine taxes bear an ancient title dating back to the Ostrogothic rulers of Italy and to Germany in the medieval-to-18th- century period, where the mine assessor was always a distinguished citizen.

The Ontario mine assessor, of course, had to comply with the provisions of the Act, but he still had great latitutde. Astonishingly, until 1975 there were not even any detailed regulations on how he went about determining the tax payable. Responsible to cabinet

In order to prevent political or other interference, that is, “undue influence” in law, he was, for decisions made on the mining tax to be paid, responsible only to cabinet as a whole, not to the minister of mines nor the deputy minister. On everything else he did report to the latter two officials.

Such an independent authority on the tax to be paid did not sit well with the mining industry and over the years it naturally lobbied to have this provision removed or modified. The industry’s preference, understandably, was the federal system, where the rules of calculation are set out in great detail and where the political minister of the day has, in effect, the final power to decide the amount of taxes owed by a mining company.

The mine assessors in the 80 years since 1907 were all surprisingly conscientious and uncorrupted in what became a long series of lonely multi-million-dollar tax decisions.

He also administered the powerful section 104 of the Mining Act, which still obliges the mine to process the output in Canada, or risk the loss of all mining rights, unless exempted by cabinet.

Many senior civil servants used to murmur that it was the most powerful job in the public service, where normally the hierarchical chain of rank and command is quite rigid. T. P. (Tom) Mohide, a former president of the Winnipeg Commodity Exchange, served as a director of mining resources with the Ontario Ministry of Natural Resources prior to his retirement in 1986. The conclusion of his two-part review of the complex and controversial subject of mining taxes will be published in May.