27 January 1998 Internal T.I. 9730226 - PROVINCIAL MINING TAXES

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: Are provincial mining taxes eligible for the BC tax rebate under section 19 of the BC Income Tax Act.

Position: Generally, no.

Reasons: The provincial mining taxes we have looked at are "profit based" taxes which are not eligible for the BC tax rebate.

January 27, 1998

Large Business Audit Division Resource Industries
Industry Specialist Services Section
R. C. Neville - Coordinator A. Seidel
Resource Industries (613)957-8974

Attention: B. A. Chisholm
973022

Provincial Mining Taxes

This is in reply to your memorandum dated November 14, 1997 in which you requested our views with respect to the eligibility of provincial mining taxes for the tax rebate under section 19 of the B.C. Income Tax Act (the "BC Act") as it applies to 1995 and subsequent taxation years.

The Department’s position continues to be that provincial "profit based" mining taxes are not incurred for the purpose of gaining or producing income from a business, but rather, are incurred only after the income has been earned. Accordingly, such provincial mining taxes are not deductible for federal income tax purposes by virtue of the provisions in section 9 and paragraph 18(1)(a) of the Income Tax Act (the "Act") and not pursuant to the provisions of paragraph 18(1)(m) of the Act.

For the purposes of computing a corporation’s corporate income tax payable pursuant to the BC Act, section 19 of the BC Act was amended, effective January 1, 1995, to permit a deduction from taxes otherwise payable for taxes payable under the BC Mineral Tax Act provided the taxes payable would not be deductible in computing income subject to tax under the Act by virtue of paragraph 18(1)(m) of the Act.

The taxes payable under the BC Mineral Tax Act are equal to the aggregate of the following:

• 13% of the "net revenue" derived from the operation of the mine; and
• 2% of the "net current proceeds" derived from the operation of the mine.

"Net revenue" and "net current proceeds" are defined in sections 6 and 7, respectively, of the BC Mineral Tax Act. It is our view that the taxes payable in respect of "net revenue" and "net current proceeds" would both be considered to be "profit based" taxes. The taxes payable under the BC Mineral Tax Act would therefore not be deductible for federal tax purposes by virtue of section 9 or paragraph 18(1)(a) of the Act.

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If you wish to discuss any of the above, do not hesitate to contact the writer.

Chief
Resource Industries Section
Resources, Partnerships and Trusts Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch