Policy & Positions Manual
Provincial Issues - Energy and Mines
Using Financial Mechanisms to Develop BC’s Mineral Resources (2012)
Mineral Exploration expenditures in BC increased from $154 million in 2009 to a record $463 million in 2011. A significant factor in this increase has been the availability of financial mechanisms at both the provincial and federal levels that encourage such investment.
However, with the recent uncertainties in global economic prospects, financing availability has tightened up over the past year, and companies are again finding it more difficult to raise money for exploration.
Flow-through share financing has been a successful structure for over 30 years whereby governments have acted as a catalyst to increase the levels of resource property exploration and development in Canada. By acting as a catalyst to assist mining companies in attracting greater amounts of private market funding at more attractive terms than would otherwise be possible without government support, governments help encourage mineral exploration activity and the discovery and development of their mineral resource.
Flow-through shares were originally introduced to address an exploration financing inequity that arose between major and junior exploration companies. Major producing companies have income against which their exploration (and other) expenses can be deducted; most junior exploration companies are not yet producing and so have no income from which to deduct their legitimate expenses.
A flow‐through share (FTS) is a share, or the right to buy a share, of the stock of a mineral resource company where these expenses are “flow through” from the company to investors who can use these expense deductions against their income to reduce their tax payable. A flow‐through share is issued under a written agreement between a corporation and an individual under which the individual agrees to pay for the shares, and the corporation agrees to transfer certain mining expenditures to the individual for their own use.
The BC mining flow-through share (BC MFTS) tax credit allows individuals who invest in flow-through shares to claim a non-refundable tax credit equal to 20% of their BC flow-through mining expenditures. The BC MFTS has been harmonized with, and has been in addition to, the 15% federal Mineral Exploration Tax Credit. Unfortunately, the expiry date for the BC MFTS tax credit is December 31, 2013.
BC has an excellent Mining Exploration Tax Credit (METC) program that provides a 20% refundable tax credit for resource companies through January 2017, and an enhanced rate of 30% for companies exploring areas affected by the mountain pine beetle. The Chamber thanks the government for its foresight in implementing a long-term tax incentive for companies active in mineral exploration.
A significant amount of money raised from flow-through financing was not deployed during the recent market downturn while some operating companies were unable to finance brownfield exploration or expansions. These gaps could be addressed if the flow-through program was amended to allow this application of flow-through funds to open pit and underground exploration and development at both brownfield and greenfield sites.
THE CHAMBER RECOMMENDS
That the Provincial Government encourage private sector investment in mineral exploration by:
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making the BC Mining Flow-Through Share (BC-MFTS) share program a permanent feature of the tax system or, at a minimum, extend the program for an additional three years. In addition, the Government should implement a temporary increase in the deduction gross-up to 125% for development spending and 150% for exploration spending to flow-through share financing, and increase the associated tax credit of eligible costs from 20% to 30% (similar to the Budget 2007 measure to increase the mineral exploration tax credit in pine-beetle infested regions);
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expanding flow-through eligibility to include both surface and underground greenfield and brownfield exploration and development expenditure;
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making the BC Mineral Exploration Tax Credit permanent; and
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working with the Federal Government to expand the definition of exploration under federal Income Tax Act to include spending on or near a closed property.
