To promote mining in Canada, the federal government has made available certain tax deductions for investments in this sector. To encourage the exploration and development of Canadian natural resources, the government allows Canadian natural resource companies to issue common shares that entitle the holder to certain tax benefits. These shares are called flow-through shares.
Canadian natural resource companies have certain expenses, known as Canadian Exploration Expenses (CEE), which can be deducted 100 % for tax purposes by the purchasers of flow-through shares. In addition to benefiting a taxpayer in the current taxation year, these tax deductions can be carried back 3 years and carried forward 7 years.
In addition, there is also a 15 % tax credit available to investors anywhere in Canada for grass roots mining exploration expenses incurred in Canada -- this applies only to mining of metals and minerals, and not for extraction of oil and gas. For investors in every province and territory of Canada, the tax credit is at least 15 % as long as the grass roots mining exploration occurs somewhere in Canada. In addition, some (but not all) of the provinces and territories have added their own tax credit, ranging from 5 % in Ontario to 32 % in Manitoba, with 20 % in British Columbia and 10 % in Saskatchewan. Quebec has some additional tax deductions for mining exploration in addition to the federal 100 % CEE tax deduction. The provincial tax credit only applies if the investor is resident in the province, and the exploration occurs in the same province. In addition to benefiting a taxpayer in the current taxation year, these tax credits can be carried back 3 years and carried forward 10 years.
The mining tax deduction and tax credits are unique to Canada, and have helped propel Canada to be the number one mining country in the world.