Ontario 2009 Budget Provides Miners with Tax Efficient Opportunities

This article was provided by the Ontario Mining Association (OMA), an organization that was established in 1920 to represent the mining industry of the province.

Several measures announced by Ontario Finance Minister Dwight Duncan in the 2009 provincial Budget yesterday promise tax savings to Ontario mineral producers.  Perhaps the most important is the move to a single value added tax by July 1, 2010, which could save the mining sector potentially millions of dollars annually.  This federally administered value added tax would have a combined rate of 13% — 8% for Ontario, matching the soon to be phased out retail sales tax, and 5% for Ottawa, matching the current Goods and Services Tax (GST).  

The value added tax allows companies to be reimbursed for tax paid on business inputs through tax credits.  It is estimated that Ontario´s $10 billion-plus mining sector spends about $3 billion annually on these inputs to production.  More than 90% of these production inputs are purchased in Canada and 80% of the province´s mineral output is exported.  The arithmetic may be complicated for individual companies and there is a lag in receiving benefits of the tax credits, but the potential for tax saving — freeing more dollars for future investment — is significant.

A further measure, which benefits mining, includes a reduction in the general Corporate Income tax (CIT) from 14% to 10% by 2013.  The CIT for manufacturing and processing, which includes mining, is to be cut from 16.7% to 10% effective July 1, 2010.  Helping these measures are the temporary accelerated 50% straight-line capital cost allowance for machinery and equipment investments made in 2010 and 2011 and the planned elimination of the Capital Tax.

“Once fully implemented, these reforms would make Ontario one of the most competitive jurisdictions in the industrialized world for new investment,” said Finance Minister Dwight Duncan.  “Overall, this is the most important tax reform we can make to inspire growth and kick-start the rebuilding of our manufacturing and resource sectors.”

The 2009 Budget said “mining is a significant driver of economic growth in Northern Ontario, which is home to Ontario´s 27 metal mines, five of the province´s 14 major industrial mining operations, most of Ontario´s gemstone operations and an estimated 400 mining service and supply companies.  Metal prices have dropped significantly from recent highs and the current global economic crisis continues to create challenges for the sector.  The Government is taking measures to help the mining sector.  This spring, the government will introduce changes to the Mining Act that will promote balanced development to benefit all Ontarians, while supporting a vibrant Ontario minerals industry.”

“The proposed legislative changes would also establish a framework that would make significant strides in Aboriginal consultation.  The government is providing $40 million over three years for initiatives to support Mining Act modernization.”  The Budget has also committed $2 million a year for four years to mining equipment and service companies and sector associations to expand their export capacity and sales on international markets.  Also promised is infrastructure support for Northern highways, winter roads and remote airports.

The 2009 Budget predicts a deficit of $3.9 billion in 2008-2009 and a deficit of $14.1 billion for 2009-2010.  The Budget announced investments of $32.5 billion for infrastructure support.  This government stimulus represents 2.9% of Ontario´s Gross Domestic product (GDP) and it is higher than mining´s 1.8% of the province´s GDP. 

Extraordinary economic times require extraordinary actions.  During Meet the Miners Day, one of the key messages from the Ontario Mining Association to politicians was that mining should be a big piece in solving the province´s current economic puzzle.  Mining with its long history and the foundation for a prosperous future is part of the solution.  The Minister of Finance and his cabinet colleagues seem to be hearing this message.