On March 1, 2015 the Canadian Federal Government announced mining-sector tax changes that will impact consultation expenses.
Canadian Exploration Expenses (CEE) will now include costs of environmental studies and community consultation. This is a benefit to mining and oil & gas companies which are increasingly required by provinces and territories to undertake consultations as a precondition to obtaining a permit or license to explore.
Community consultation costs would be deductible for tax purposes and also be eligible for flow-through share treatment. The change will apply to expenses incurred after February 2015
To ensure the appropriate treatment of such expenses, the Government proposes to modify the tax rules to provide that CEE treatment is not denied for the cost of otherwise eligible environmental studies and community consultations solely because they are a pre-condition to obtaining an exploration permit or licence. (Department of Finance Canada)
Historically, the Canada Revenue Agency has taken the position that costs incurred in order to obtain an exploration permit did not qualify as Canadian Exploration Expenses. In a recent article, Steven Suarez from Border Ladner Gervais summed up that this impeded the ability for some mining companies to raise capital because “these expenses were not fully deductible in the year incurred, nor were they eligible for renunciation to investors of flow-through shares”.
The new, expanded measures are expected to act as an incentive that will help drive more investment in resource exploration in Canada, particularly by smaller companies that often find early-stage exploration costs to be onerous.
Meaningful consultation is an essential part of resource exploration and this new action by the Canadian Federal Government should encourage more effective stakeholder engagement by making the process financially feasible for more organizations.
For more information on the CRA amendments please refer to the Canada Revenue Agency website.