BULLETIN D'INFORMATION

Transcription

1 BULLETIN D'INFORMATION August 20, 2002 Subject: TEMPORARY IMPROVEMENT TO THE REFUNDABLE TAX CREDIT FOR RESOURCES This information bulletin describes the application details of the temporary improvement of the refundable tax credit for resources, announced today in a press release by the Deputy Premier and Minister of State for the Economy and Finance, Pauline Marois. For information concerning this subject, contact the Secteur du droit fiscal et de la fiscalité at (418) The French and English versions of this bulletin are available on the ministère des Finances website at: Paper copies are also available, on request, from the Direction des communications, at (418)

2 - 1 - Temporary improvement to the refundable tax credit for resources As part of the March 29, 2001 Budget Speech, the implementation of a refundable tax credit for resources was announced. This tax credit is a more direct assistance mechanism that will replace all the tax benefits relating to flow-through shares. Accordingly, an eligible corporation that incurs eligible expenses during a taxation year may receive a refundable tax credit, for such year, of up to 45% of the amount of such eligible expenses. In the current situation, the mineral resources of many mining companies active in Québec could be depleted before new discoveries are made. Accordingly, to further encourage exploration work in Québec, the refundable tax credit for resources will be temporarily improved regarding exploration expenses for a mineral resource. More specifically, the tax credit will be improved by the addition, until 2007 inclusive, of a non-refundable, bringing its rate to 60% in the case of eligible expenses incurred regarding mineral resources. This temporary improvement will provide a significant incentive for corporations that pay income tax or tax on capital to Québec and that incur such eligible expenses. Eligible expenses Under the current rules, the expression "eligible expenses" of an eligible corporation, for a taxation year, means all the expenses it incurs during this year and attributable: either to exploration expenses that, under the flow-through share system, enable an individual to claim a deduction of at least 125%; or to expenses incurred in Québec and relating to renewable energy and energy conservation allowing an individual to claim a deduction of 100%.

3 - 2 - For greater clarity, the exploration expenses which, under the flow-through share system, allow an individual to claim a deduction of at least 125% include certain Canadian development expenses incurred in Québec that are deemed to be exploration expenses incurred in Québec, thus allowing an individual to claim a deduction of 125%, and Québec surface mining exploration, oil or gas exploration expenses that enable an individual, with the addition of a further deduction of 50%, to claim a total deduction of 175%. In short, eligible expenses for the purposes of the refundable tax credit for resources are the Québec expenses covered under the flow-through share system, i.e. exploration expenses relating to a mineral resource, oil and gas exploration expenses and certain expenses related to renewable energy and energy conservation. Moreover, the eligible expenses must be reduced by the amount of any government assistance, any non-government assistance and any profit or gain, according to the usual rules. In addition, in the November 1, 2001 Budget Speech, a change was made to the type of resources covered by this tax credit to include cut stone. Accordingly, the natural resources covered by the tax credit now include, in addition to those indicated previously, granite, sandstone, limestone, marble and slate, when these resources are used to make dimension stone, funerary monuments, building stones, cobblestones, sidewalk borders or roofing tiles. Eligible expenses relating to such natural resources are the same as those for mineral resources, i.e. the exploration expenses which, under the flow-through share system, enable an individual to claim a deduction of at least 125%. Rates of the refundable tax credit Under existing rules, the rate of the tax credit a corporation may claim ranges from 20% to 45%. More specifically, the basic rate of the tax credit a corporation may receive is 20%. This rate is raised to 40% regarding eligible expenses incurred by a corporation that does not develop any mineral resource or any oil or gas well and is not related to a corporation that develops a mineral resource or an oil or gas well. In addition, the rates of 20% and 40% are raised to 25% and 45% respectively, regarding eligible expenses incurred by an eligible corporation in Québec s Near North or Far North.

4 - 3 - In the specific case of expenses incurred in Québec and relating to renewable energy and to energy conservation, a single rate of 40% applies. Lastly, in the case of cut stone covered by the changes announced on November 1, 2001, a single rate of 20% is applicable. Addition of a non-refundable bringing the rate to 60% The rate of the tax credit applicable to eligible expenses incurred for covered mineral resources will be raised to 60% by adding a non-refundable. The rate of this non-refundable will vary depending on the type of corporation that incurs such eligible expenses and the region in which the expenses are incurred. The following table shows the rates of the tax credit. RATES OF THE TAX CREDIT (Per cent) Corporations that do not develop any mineral resource or any oil or gas well Other corporations Tax credit regarding eligible expenses: Refundable Nonrefundable Total Refundable Nonrefundable Total relating to mineral resources in the Near North or Far North elsewhere in Québec relating to oil and gas in the Near North or Far North 45 n. a n. a. 25 elsewhere in Québec 40 n. a n. a. 20 relating to renewable energy and energy conservation 40 n. a n. a. 40 relating to other natural resources (cut stone) 20 n. a n. a. 20

5 - 4 - For instance, the rate of the non-refundable of the tax credit is 40% in the case of a corporation that develops a mineral resource and incurs such eligible expenses in Québec other than in Québec s Near North or Far North, while the rate of such non-refundable is 15% in the case of a corporation that does not develop any mineral resource or any oil or gas well and which incurs such eligible expenses in Québec s Near North or Far North. In these two examples, corporations can thus receive a tax credit of 60% of their eligible expenses relating to mineral resources, consisting of, in the first case, a refundable of 20% and a non-refundable of 40% and, in the second case, a refundable of 45% and a non-refundable of 15%. However, the non-refundable may be claimed by a corporation only up to the amount of income tax and tax on capital payable by such corporation for a taxation year. In this regard, the income tax and tax on capital payable by a corporation correspond to what is payable by the corporation before taking into account any other refundable tax credits the corporation may otherwise receive, including the refundable of this tax credit. When all or part of the non-refundable tax credit relating to eligible expenses incurred during a taxation year cannot be applied against income tax or tax on capital payable, for such taxation year, the non-refundable of such tax credit in excess of the income tax and tax on capital payable for such taxation year may be carried forward to the following seven taxation years and carried back to the preceding three taxation years, against income tax or tax on capital payable for such years. However, such carry-over may not be made regarding a taxation year ended prior to the day following the date of publication of this information bulletin. For greater clarity, this temporary improvement will apply only to eligible expenses incurred regarding mineral resources. Accordingly, it will not apply to oil or gas exploration expenses, to expenses relating to renewable energy and energy conservation, or to eligible expenses relating to cut stone. Other application details The other application details of the refundable tax credit for resources will also apply to the non-refundable of the tax credit.

6 - 5 - Accordingly, if eligible expenses for which a tax credit is granted are paid back to the eligible corporation, in whole or in part, the tax credit thus granted, i.e. applied against income tax or the tax on capital payable for a taxation year, will be recovered by means of a special tax. If the tax credit was not granted, an appropriate reduction will be applied to the deferred of the tax credit. In addition, an eligible corporation that wishes to claim this improvement to the tax credit, for a taxation year, must enclose with its tax return, for such year, the form prescribed by the ministère du Revenu du Québec. All of the tax credit will continue not to be taxable, either under the Taxation Act or under the Mining Duties Act. Accordingly, it need not be added in calculating income or in calculating the annual profit of an eligible corporation, and will not reduce the exploration expenses that can be deducted by such a corporation. For greater clarity, the rules limiting the use of losses in case of acquisition of control of a corporation will also apply to the non-refundable of this tax credit. However, in case of acquisition of control of a corporation, the non-refundable of the tax credit may be carried over exclusively against the income tax and tax on capital attributable to the business, or its extension, carried on by the corporation before such acquisition of control. Lastly, the eligible expenses regarding which a tax credit is claimed by an eligible corporation must have been paid at the time of claiming the tax credit. Application date This improvement will apply regarding eligible expenses it covers that are incurred after the date of publication of this information bulletin and before January 1, 2008.