The Canadian mining industry is one of the largest private sector, employing over 400,000 people and an additional 206,000 indirectly. It is ranked as one of the largest mining supply sectors in the world with over 3,700 companies providing wide range of services tied to the mining business. The sector generated $97 billion to the country’s GDP in 2017, most of which came through duties royalties and taxes payable by companies carrying out mining operations.
Mining Tax Regime
Mining companies in Canada are subject to general income tax rules from which the government generate a significant amount of money. While the companies have to contend with federal income taxes, they must also part ways with income taxes levied by individual provinces and territories.
The royalties and mining taxes billed by provinces vary depending on the type of mineral a company is mining as well as the jurisdiction of operation. While some jurisdictions don’t charge mining taxes or royalties, others charge depending on the mining profits or the value of outputs that the companies generate.
Tax advantages and incentives are also on offer to companies engaging in exploration and mining operations. The tax advantages and incentives seek to allow mining companies to recover initial capital investments before they start paying up a fair share of their mining taxes. The income tax act categorizes exploration and development expenses into a pool, depending on the date it was incurred as well as their nature for, deductions purposes.
Some of the expenses eligible for deductions include expenses incurred to determine the existence of a location for a mineral resource. The exploration expenses that can significantly lower the amount of taxes that a company pays include costs associated with environmental studies as well as community exploration.
Expenses incurred to bring mineral resources to full commercial production can also limit the amount of tax that a mining company pays. The cost incurred to acquire a resource property also entitles mining companies to a deductible of up to 30% on a declining basis.
Amidst the friendly tax regime designed to spur the mining industry, several companies continue to offer exciting investment opportunities.
Canadian Mining Stocks To Watch
Wesdome Gold Mines (TSX:WDO) has generated significant amount of returns over the past two years as it continues to outperform the overall industry. The company explores extracts and sells gold in Canada. Its principal mining assets are in the Eagle River Mine. Returns of as much as 113% over the past year affirms the company’s investment opportunities.
Lundin Mining (TSX:LUN) is an ideal pick for investors who wish to gain exposure to a wide array of metals. The company is engaged in the exploration and mining of Zinc, nickel, gold, lead, silver among other metals. It has mineral properties distributed across the U.S, Portugal, Canada, and Sweden. The company boasts of a 4% ROE backed by a dividend yield of 1.81% projected to grow by 27%.
Barrick Gold Corp (TSE: ABX) is one of the best picks for investors looking to gain exposure to gold. The precious metal has been on an impressive run since the start of the year amidst fears of recession as well as geopolitical tension. The company boasts of operations in more than a dozen countries, which provides it with a diversified gold mining portfolio.