OTTAWA (Reuters) - Canada's federal budget on Thursday met a key demand of the mining industry by proposing to extend a 15 percent mineral exploration tax credit for investors in flow-through shares.
The credit - used mainly by junior mining firms - has raised an average of C$800 million ($784 million) a year in new financing, according to the budget document.
In the run-up to the budget the mining industry had lobbied Ottawa to keep the credit, which had been due to expire on March 31 this year.
"Given the ongoing economic uncertainty and to support the mineral exploration efforts of junior mining companies, (the budget) proposes to extend the credit for an additional year, until March 31, 2014," said the document.
Extending the measure is projected to cut federal revenues by a total of C$100 million over the 2013/14 to 2014/15 fiscal years.
Flow-through shares allow companies to renounce or "flow through" tax expenses associated with their Canadian exploration activities to investors, who can then deduct the expenses in calculating their own taxable income. The credit is an additional benefit for investors in flow-through shares.
Funds raised in one calendar year using the credit can be spent on eligible exploration up to the end of the following calendar year.
But in a move unlikely to please the mining industry, the budget also proposed to phase out tax preferences for capital expenditures in the mining sector. The government said this will make the tax system more neutral between mining and other industries.
"The accelerated capital cost allowance for capital assets used in new mines and major mine expansions will be phased out. And the deduction rate for pre-production mine development expenses will be reduced," it said.
The measures will have a relatively minor impact, costing firms a total of just C$55 million by the 2017/18 fiscal year, the government estimated.
"These measures will improve the neutrality of the tax system and allocation of investment and capital within the Canadian economy," said the budget document, adding the mining sector had already benefited from earlier corporate income tax reductions and the elimination of the federal capital tax.
The move to eliminate the tax preferences - which will affect the coal mining industry - is also designed help Canada meet a commitment by the Group of 20 nations to phase out inefficient fossil fuel subsidies.