CANADA Law and Practice Contributed by: Darrell Podowski, Brian Dominique, Joel Matson and Christa Alvernaz, Cassels Brock & Blackwell LLP
4. Taxation of Mining and Exploration 4.1 Mining and Exploration Duties, Royalties and Taxes Corporations that carry on exploration and mining activities in Canada are subject to the general income tax rules that apply to all corpo - rations operating in the country. Income tax is imposed at the federal level under the Income Tax Act (Canada), and at the provincial and ter - ritorial level each province and territory has its own income tax statute. The current Canadian federal corporate tax rate is 15%, and provincial/ territorial tax rates range from 8% to 16%. A non-resident corporation carrying on business in Canada is subject to Canadian income tax at the same tax rate as is applicable to Cana - dian resident corporations, in addition to a 25% “branch tax” on profits that are not reinvested in Canada. The branch tax is intended to approxi - mate withholding tax on dividends; where the dividend withholding tax rate is reduced under an applicable tax treaty, the branch tax is gener - ally correspondingly reduced. In addition, a non- resident is subject to income tax in Canada on the disposition of “taxable Canadian property”, which includes any interest in real or resource properties situated in Canada, and certain shares and partnership or trust interests that derive their value from such properties. Canada levies a 25% withholding tax on certain payments to non-residents, including dividends, certain interest payments, rents and royalties. The rate of Canadian withholding tax may be reduced if the non-resident recipient is eligible to claim the benefits of one of Canada’s tax trea - ties.
Each province and territory also levies separate mining taxes or royalties on mining activities; the rates and basis of calculation vary depending upon the jurisdiction and the type of mineral. In many provinces and territories, the mining tax is computed by reference to mining profits, where - as certain provinces impose royalties that vary according to the specific mineral. 4.2 Tax Incentives for Mining Investors and Projects As in other sectors, a corporation engaged in exploration and mining activities is entitled to deduct expenses incurred for the purpose of earning income. A corporation may also deduct certain capital expenditures, including tax depre - ciation on tangible capital assets (capital cost allowance, or CCA). Canadian tax regimes appli - cable to exploration and mining recognise the capital-intensive nature of the mining industry. To ensure the international competitiveness of Canada’s resource industry, these regimes pro - vide incentives designed to encourage invest - ment, including the following. • Mining taxes and royalties paid to a province or territory for income from a mineral resource are fully deductible when computing income for income tax purposes. • The depreciation of tangible assets for income tax purposes is allowed under the CCA system, under which the capital cost of a depreciable asset is included in a particu - lar asset class, for which a maximum annual depreciation rate is prescribed. • Certain other resource or mining expenses may also be deducted on a current or declin - ing-balance basis. These expenses are added to cumulative resource pools classified as Canadian exploration expenses (CEE) and Canadian development expenses (CDE).
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