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Canada: Relief to ease deductions for mining taxes to be proposed

Canada: Deductions for mining taxes proposed

The Department of Finance, in a recent “comfort letter,” stated that it will recommend amending the income tax law and regulations to allow a current year deduction for certain previously excluded provincial or territorial mining taxes. This relief would affect taxpayers paying mining taxes in a current year on income from mining operations carried on during a previous tax year that has been barred from reassessment.

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Finance said it will recommend that the deduction be equal to the amount that would otherwise have been allowed for the tax year in which the relevant mining operations were conducted, had it not been a statute-barred tax year. Finance says it will recommend that the amendment be retroactive for tax years ending after 2007.

This would provide relief for taxpayers carrying on mining operations that may be reassessed for additional provincial or territorial mining taxes several years after the tax year in which the relevant mining operations took place. In such circumstances, the Canada Revenue Agency (CRA) may be unable to reassess the tax year to allow a corresponding deduction in computing business or property income for federal income tax purposes if the year is statute-barred.


Legislative background

Taxes are often levied by a province or territory on a taxpayer's income from mining operations (known as mining taxes). In a particular tax year, taxpayers are entitled to a deduction for mining taxes incurred on income for the year regarding certain mining operations (e.g., mineral production, mineral processing, etc.).

Under the current rules, when a taxpayer has filed its federal income tax return for a particular tax year and is subsequently assessed or reassessed by a province or territory for additional mining taxes in respect of that year, then the taxpayer must amend its tax return to claim a deduction for any additional mining taxes paid. If the particular year in which the relevant mining operations were conducted (and additional mining taxes were incurred) is barred from reassessment, the CRA cannot reassess the taxpayer to allow a deduction for these additional mining taxes.

Read a December 2019 report prepared by the KPMG member firm in Canada

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