How mining is taxed in Canada and internationally

Mining operations are subject to various types of taxation in Canada and to Canadian tax regimes for foreign investment in Canada and Canadian investment abroad. This page provides an overview of taxes that can affect the mining industry.

Federal taxes

Federal taxes that apply to mining companies operating in Canada (including offshore mining) are the following:

• corporation income tax, including withholding tax
• goods and services tax (GST), a value-added tax that applies to virtually all goods and services bought and sold
• payroll levies (including Employment Insurance, Canada Pension Plan, or Quebec Pension Plan for a business located in Quebec)
• excise taxes, which are levied on selected business inputs, such as fuel

Learn more about federal taxes (Canada.ca).

Provincial and territorial taxes

Provincial and territorial taxes that affect the mining industry are the following:

• corporation income taxes
• mining taxes and royalties on the exploitation of natural resources (see below)
• payroll levies (including health and/or post-secondary education taxes and workers’ compensation)
• harmonized sales tax (HST) (some provinces, including Ontario, Nova Scotia, New Brunswick, Newfoundland and Labrador, as well as Prince Edward Island, have combined their provincial sales tax with the federal GST to create an HST, which is collected by the Canada Revenue Agency)
• excise taxes (particularly on fuel) and sales taxes

Mining companies should consult with the provincial or territorial government where they are operating to learn more about provincial and territorial taxes.

Municipal taxes

Municipalities have the power to levy taxes on properties, licences and fees. Municipal taxes vary widely among municipalities, and mining companies should consult the municipality where they are operating.

Mining taxes and Crown royalties

All provinces and territories impose mining taxes and/or mining royalties or mineral land taxes on mining operations in their jurisdictions, including offshore mining. This is a third level of taxation, separate and distinct from federal and provincial/territorial income taxes. These mining levies are intended to compensate the province or territory for the extraction of its non-renewable resources.

The only province or territory for which the federal government manages mining taxes is Nunavut. Nunavut mining royalties are described in the Nunavut Mining Regulations, which apply to Crown lands in Nunavut, including lands under the administration and control of the Commissioner of Nunavut.

For more information, contact:

Mining Recorder's Office — Nunavut Regional Office
Indigenous and Northern Affairs Canada
969 Qimugjuk Building
PO BOX 100, Iqaluit, Nunavut
X0A 0H0
Phone: 867-975-4281
Fax: 867-975-4286
Mining Recorder’s Office — Nunavut Regional Office

All provinces and territories impose mining taxes on mining profits. The mining taxes are levied on profits from the operations at the mining stage only. However, no fair market value of production can reasonably be established at the mining stage. In practice, taxes are generally computed from the profits from both mining and processing operations. To account for the cost of processing, a processing allowance is deducted (except in British Columbia, Alberta, Saskatchewan and Prince Edward Island). This allowance is computed as a percentage (representing the allowed rate of return on processing investment) of the original cost of the processing assets. Processing allowances cannot be more than a stated percentage (usually 65%) of the combined mining and processing income, calculated before the processing allowance. In some cases, a minimum percentage of mining and processing profits is allowed when this calculation yields a higher deduction than that calculated by applying the allowed percentage of the processing asset cost.

Each provincial or territorial tax regime permits a deduction (at varying rates) for the depreciation of mining and processing assets and for the amortization of pre-production expenses. However, the cost of the mineral property, expenses for exploration outside the province and depletion or interest expenses cannot be deducted. Only New Brunswick and Newfoundland and Labrador allow a deduction for non-Crown royalties, because these two provinces tax the recipient of such royalties. Only British Columbia currently provides relief for operating losses from prior years.

The table below illustrates a typical calculation of mining taxes in a province or territory that permits the deduction of a processing allowance.

Hypothetical mining tax calculation

	Year X	Year X+1	Year X+2	Year X+3
	($000)
Net income	2,000	2,000	2,000	1,000
Depreciation of original assets	1,000	0	0	0
Replacement capital	0	0	500	0
Exploration	1,000	200	100	0
Income before processing allowance	0	1,800	1,400	1,000
Processing allowance	0	800	800	650
Taxable income	0	1,000	600	350

Model assumptions:

• initial capital cost of processing assets = $10 million
• non-depreciated capital cost = $1 million at the beginning of Year X
• processing allowance is the minimum of 8% of the original cost of the processing asset and 65% of the income before the processing allowance

Common approaches and main variations of the Canadian mining tax regimes

The common approaches include:

• mining taxes are mainly profit-based
• mining and processing assets are depreciable
• exploration expenses are at least 100% deductible
• most provinces/territories have a processing allowance
• interest, depletion and cost of the mining property are not deductible

The main variations include:

• tax structures vary from a single rate to two-tier rates and sliding-scale tax rates
• depreciation methods vary from straight-line to declining balance
• some offer a cost of capital allowance
• mining taxation in some provinces/territories is specific to the type of mineral, for example:
• Alberta: metals are distinguished from industrial minerals
• Saskatchewan: metals are distinguished from potash, and both are distinguished from uranium
• Ontario: metals are distinguished from diamonds

Canadian international income tax rules

Foreign investors and mining companies should be aware of taxes on foreign investment in Canada. Canadian mining companies active abroad should be aware of taxes on Canadian investment abroad.
Canadian international tax rules follow models recommended by the Organisation for Economic Co-operation and Development (OECD). They follow the standard international norm of giving priority to the country where taxable income is generated (the source country).

Broad principles

Worldwide taxation

Canadian residents are liable for taxes on their income worldwide. Corporations with their central management located in Canada or incorporated in Canada are considered residents of Canada for tax purposes.

Eliminating double taxation

To avoid the double taxation that would result from having the same income taxed in both the source and residence country, Canadian residents are entitled to a credit or exemption for income from another source country.

Permanent establishment

A foreign entity operating in Canada through a permanent establishment (an entity not legally separate from its parent corporation) is liable for tax on income generated in Canada only.

Taxation of foreign investment in Canada

Subsidiaries

Foreign investors doing business in Canada through a separate legal entity (such as a subsidiary) are considered Canadian residents and are taxed as such. Such investors pay income tax on their worldwide income, although appropriate relief is provided for taxes paid in other countries if the subsidiary also carries out business abroad. Payments made to non-residents are subject to withholding taxes. The statutory withholding tax rate is 25%. However, this rate is usually reduced through Canada’s extensive network of tax treaties with other countries.

Branches

Non-residents doing business in Canada through permanent establishments (such as a branches), rather than through separate legal entities, pay income taxes on the income attributed to the business they conduct in Canada. In addition, a branch tax is imposed on non-resident corporations’ after-tax source income that has not been reinvested in Canada. The statutory branch tax rate is 25%, but it can be reduced by tax treaties. The branch tax is similar to the withholding tax on dividends for a non-resident’s business carried out through a subsidiary.

Special tax measure for mining

Non-resident corporations can be incorporated as principal-business corporations (PBC) in Canada if their principal business is directly related to mining or oil and gas activities. PBCs have access to special tax incentives, such as flow-through shares and the Canadian Exploration Expense and Canadian Development Expense. To learn more, see Tax incentives for mining and exploration.

Taxation of Canadian investment abroad

Branch income

When a Canadian resident’s foreign operations are conducted through a branch, the branch’s income is included in the resident’s taxable income in Canada. However, the Canadian resident can claim a tax credit for foreign taxes levied on income attributable to the branch. This credit is limited to the tax payable to Canada on the foreign-source income and is computed on a country-by-country basis. Canadian taxes cannot be deferred, but foreign losses are deductible against Canadian-source income.

Subsidiary income

When a Canadian resident’s foreign operations are conducted through a subsidiary, the income earned by the subsidiary is generally not subject to taxation in Canada until profits are remitted to Canadian shareholders in the form of dividends or until the Canadian corporation disposes of its foreign subsidiary. The tax treatment of foreign subsidiaries depends on ownership:

• if Canadian ownership is less than 10% of common shares, then the income is “portfolio income”
• if ownership is equal to or greater than 10%, but less than 50%, the foreign corporation is a “foreign affiliate”
• if ownership is greater than 50%, the corporation is a “controlled foreign affiliate”