Tax administration for the mining industry

The tax administration group within the Lands and Minerals Sector (LMS) of Natural Resources Canada (NRCan) helps mining companies and tax specialists understand relevant sections of the Income Tax Act.

On this page

• Mineral resource certification
• Separate mine status
• Expenditures eligible for the Canadian Exploration Expense
• Production in reasonable commercial quantities

Mining and exploration companies operating in Canada that are searching for guidance on tax questions should first contact the Canada Revenue Agency:

Canada Revenue Agency
Income Tax Rulings Directorate
Resources Industry Section
Place de Ville, Tower A
320 Queen Street, 5th Floor
Ottawa, Ontario, Canada K1A 0L5
itrulingsdirectorate@cra-arc.gc.ca

For questions about interpretation of taxes and tax measures affecting mining operations, our tax administration group can help you.

This page covers some common tax questions. For other questions, or to discuss your specific situation, contact:

Extractive Sector Transparency and Taxation Division
National Headquarters
580 Booth Street, 10th Floor
Ottawa, ON K1A 0E4
Email: taxadvisory-conseilsfiscaux@nrcan-rncan.gc.ca

Mineral resource certification

The federal government offers several exploration and mining tax incentives, including:

• the Canadian Exploration Expense (CEE)
• the Canadian Development Expense (CDE)
• federal Mineral Exploration Tax Credit (METC) or the new Critical Mineral Exploration Tax Credit (CMETC)
• flow-through shares (FTS)

For your company to be eligible for these tax incentives, you must prove that you are exploring for and/or mining a “mineral resource,” as defined by the Income Tax Act. If the mineral deposit does not fit the Income Tax Act’s definition, it is considered an “industrial mineral mine” for income tax purposes. In some cases, you can consider the deposit a “mineral resource” without needing a certificate. In other cases, you need a certificate.

When do you need a mineral resource certificate?

In general, you do not need a certificate if the deposit meets the definition of a “mineral resource” in subsection 248(1) of the Income Tax Act:

1. a base or precious metal deposit,
2. a coal deposit,
3. a bituminous sands deposit, oil sands deposit, or oil shale deposit, or
4. a mineral deposit in respect of which:
   1. the Minister of Natural Resources has certified that the principal mineral extracted is an industrial mineral contained in a non-bedded deposit;
   2. the principal mineral extracted is calcium chloride, diamond, gypsum, halite, kaolin, or sylvite; or
   3. the principal mineral extracted is silica, extracted from sandstone or quartzite.

But you need certification from Natural Resources Canada for deposits under (d) (1), above (“a mineral deposit in respect of which … the principal mineral extracted is an industrial mineral contained in a non-bedded deposit”).

Here is an example:

The definition of “base metal” for income tax purposes may differ from the way a base metal is defined in the mining industry. For example, lithium is usually produced as a lithium salt to battery producers. It falls under subsection (d), above, and must come from a non-bedded deposit to be considered a “mineral resource.” This means that lithium produced from brines are not considered a “mineral resource,” because brines come from a bedded deposit.

If you are unsure whether your deposit needs to be certified, contact Natural Resources Canada at the address above.

To get “mineral resource” certification:

1. Compile the following information:
   • a legal description of the property, and a complete list of the names and identification numbers of the mineral claims, leases, land lots, etc., that identify the property
   • the exact location of the deposit, with a precise map showing the location by either latitude and longitude, or other global positioning system (GPS) coordinates
   • a detailed geological description of the deposit, with particular reference to the non-bedded nature or alteration of a bedded deposit
   • details on the principal mineral (or minerals) to be extracted
   • the end use of the mineral extracted (for example, specify whether magnesium oxide from a magnesite deposit will used in the manufacture of refractory bricks for furnace linings, or for another purpose)
2. Send this information to:
   
   Canada Revenue Agency
   Income Tax Rulings Directorate
   Resources Industry Section
   Place de Ville, Tower A
   320 Queen Street, 5th Floor
   Ottawa, Ontario, Canada K1A 0L5
   itrulingsdirectorate@cra-arc.gc.ca

Separate mine status

A mineral deposit connected physically to an existing mine (one that is currently producing or has stopped producing but could start again with minor expenditures) is often ineligible for tax incentives like CEE and CDE. However, a mineral deposit can be exploited by multiple but separate mining operations. Determining whether a mineral deposit or mine is separate from another mine can be difficult.

Courts have considered whether a mineral deposit or mine is separate (or new) under the Income Tax Act on several occasions. Legal decisions to date on separate mine status have defined a mine as “a body of ore together with the workings, equipment and machinery capable of producing it.”

From this definition, it follows that a separate (or new) mine must have its own workings, machinery and equipment, separate and distinct from any adjacent mining operation.

To learn more, review the following relevant cases:

• North Bay Mica Company Ltd. v. Minister of National Revenue, D.T.C. 1151 (S.C.C.)
• Bermah Mines Limited v. Minister of National Revenue, 66 D.T.C. 519 (T.A.B.)
• Minister of National Revenue v. MacLean Mining Company Limited, 70 D.T.C. 6199 (S.C.C.)
• Marbridge Mines Limited v. Minister of National Revenue, D.T.C. 5231 (Excheq. Ct.)
• Bethlehem Copper Corporation Ltd. v. Minister of National Revenue, 72. C. 6410 (F.C.T.D.)
• Minister of National Revenue v. Bethlehem Copper Corporation Ltd., 73 D.T.C. 5281 (F.C.A.)
• Minister of National Revenue v. Bethlehem Copper Corporation Ltd., 74 D.T.C. 6520 (S.C.C.)
• Falconbridge Copper Ltd. v. The Queen, 75 D.T.C. 5394 (F.C.T.D.)
• Falconbridge Copper Ltd. v. The Queen, 79 D.T.C. 5227 (F.C.A.)
• Oro Del Norte, S.A. v. The Queen, 90 D.T.C. 6373 (F.C.T.D.)
• Placer Dome Inc. v. The Queen, 93 D.T.C. 235 (T.C.C.)

Expenditures eligible for the Canadian Exploration Expense

Exploration companies can benefit from the Canadian Exploration Expense (CEE). The Canada Revenue Agency has released a guide to expenditures that qualify as exploration costs for purposes of the CEE.

• Mining expenditure review table (Canada Revenue Agency, published on the website of the Prospectors and Developers Association of Canada) (PDF 1,031 KB)

Production in reasonable commercial quantities

When calculating corporation income taxes, mining companies operating in Canada can claim the Canadian development expense (CDE). The CDE includes pre-production development expenses, defined as expenses incurred to bring a new mine into “production in reasonable commercial quantities.” However, it can be difficult to determine when the mine has started producing reasonable commercial quantities, ending the “pre-production development” period.

The opposite can happen, too, if the corporation fails to reach production in reasonable commercial quantities. If the mine or mineral deposit is then sold to another entity, that entity could claim Canadian exploration expenses (CEE) for eligible exploration expenses.

In these instances, the definition of “production in reasonable commercial quantities” is important in determining eligibility for tax treatment.

Natural Resources Canada has developed a definition of “production in reasonable commercial quantities.” It is a period when the mill has run at 60% or higher of its design capacity every day for 90 days.

This test, however, is a “rule of thumb” and must be applied with discretion if the mill is too small for the mine or if the mine does not have a dedicated mill.