Tax Incentives — Or Tax Problems?

CIM Bulletin, Vol. 70, No. 777, 1977

R. D. Brown, F.C.A., Senior Tax Partner, Price Waterhouse & Co., Toronto, Ontario

Over the past five years, tax rates in the Canadian mining industry have skyrocketed upward across Canada, as both federal and provincial governments have sought to increase their share of mining revenues. However, the past few years have not only brought high tax rates to the industry, but also a number of important new federal and provincial tax incentives. In large part, these incentives — special credits or reduction in tax for carrying out specific exploration, processing or other activities — have helped to moderate the adverse effects of the higher tax rates and have provided inducements for exploration and processing activities which might not otherwise have been undertaken. However, the effectiveness of certain of these incentives can be questioned: our over-all tax structure now consists in large part of punitively high marginal rates with some extraordinarily generous but capricious tax reductions for specific activities and may not be in the best long-term interest of either the industry or the nation. A rational tax structure, with moderate and stable tax-rates, together with reasonable incentives confined to activities specifically requiring them, could be a more effective spur to investment than the present tax and incentive jungle.