Repairing Canada's Mining-Tax System to Be Less Distorting and Complex

26 Pages Posted: 1 Jun 2013 Last revised: 12 Jun 2013

See all articles by Duanjie Chen

Duanjie Chen

University of Calgary - The School of Public Policy

Jack Mintz

University of Calgary - The School of Public Policy; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: May 30, 2013

Abstract

The province of Ontario ended its most recent fiscal year with a $12 billion deficit and the Fraser Institute has calculated that the province is in worse financial shape than even the fiscally appalling state of California. One would think that a province so financially debilitated would want to avoid giving unnecessary and wasteful tax breaks to resource companies. Yet, a review of the mining-tax regimes across the country finds that Ontario’s system — specifically its provincial resource allowance, which duplicates the allowances provided by Ottawa that shield miners from risk — is redundant, expensive and wasteful.

Ontario is not the only province requiring a modernization of its mining-tax regime. In every province except Nova Scotia and New Brunswick, mining firms enjoy a lower marginal rate for taxes and royalties than for non-resource companies. The inevitable result has been a distortion of investment toward mining projects that might otherwise be economically inefficient. That means that in major oil-producing provinces, such as Alberta, Saskatchewan and Newfoundland, mining investment benefits from larger tax incentives than oil and gas investment. The reasons for favouring the mining of metal over oil are at least unclear and certainly economically unjustifiable.

The federal government has already begun making several changes to its tax policies to scale back preferential and irrational inducements for mining investment, including, most recently, reducing accelerated depreciation allowances for certain mining assets and phasing out the corporate Mineral Exploration Tax Credit and the Atlantic Investment Tax Credit for resources.

But Ottawa’s efforts to modernize Canada’s mining-tax structure can only go so far, when provinces continue to rely on what are often overly complex tax systems that have a distortionary effect on economic decisions being made by investors. The next step in modernizing Canada’s mining-tax system requires provinces to start eliminating preferential and wasteful tax breaks for miners. Provincial treasuries certainly cannot afford these breaks, and neither can the Canadian economy as a whole.

Keywords: mining, tax, Canada, Ontario, Quebec, system, resource, royalty, rate, taxation, distortion, break, regime

JEL Classification: H25, L72, H21

Suggested Citation

Chen, Duanjie and Mintz, Jack, Repairing Canada's Mining-Tax System to Be Less Distorting and Complex (May 30, 2013). SPP Research Paper No. 6-18, Available at SSRN: https://ssrn.com/abstract=2272881

Duanjie Chen

University of Calgary - The School of Public Policy ( email )

Calgary, Alberta
Canada

Jack Mintz (Contact Author)

University of Calgary - The School of Public Policy ( email )

Calgary, Alberta
Canada
403-220-7661 (Phone)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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