Hiding in plain sightUncovering tax credits in mining
Uncovering tax credits in mining
By Sean Verret
June 18, 2021
Ensuring quarterly books are in the black is often a challenge for the mining and metals sector. But lately, with rising commodity indexes and a rebounding economy, more and more companies are seeing profits, which leads to the question: How can I reduce the taxes payable on my increasing revenues?
Whether in British Columbia, New Brunswick or anywhere in between, there are several federal and provincial programs that the mining industry can leverage to diversify methods of generating income in the form of refundable and non-refundable tax credits — but not everyone is taking full advantage.
A common avenue to explore is the Canada Revenue Agency’s (CRA) Scientific Research & Experimental Development (SR&ED) program. We’re seeing an increasing amount of companies leverage this program to save themselves anywhere from hundreds of thousands to millions of dollars. And one way Canada’s mining leaders are maximizing this SR&ED return is by actively engaging in experimental production trials. Paraphrased from the CRA SR&ED glossary, experimental production is the output produced as a result of an experiment or a trial that’s required to gain a new understanding. The purpose of the production run, in which the output is experimental production, is to evaluate the technical aspects of the proposed question.
As time goes on, companies are gaining a better understanding of the extent of the SR&ED. They do this by identifying the individual production runs that are part of the experimental development work through specific methods of documenting their trials and performing the necessary post-trial analysis to demonstrate key learnings. They’re educating their engineers, scientists and technologists on this process and, as a result, are capitalizing on the beneficial SR&ED tax credits available to them. The key is to identify the potential for SR&ED before getting started and to embed it in operational processes.
Consider this example: your company is thinking about experimenting with a new blast pattern in an area that was technologically challenging, but you aren’t sure how it will affect your overall recovery or if it’s even possible to meet your objectives. So, you corner off a separate test blast section and then run the ore through various comminution operations to remove the gangue and produce an experimental concentrate. You then test the concentrate to see what impact the experimental tests had on the recovery. Many in the industry call this a “mine-to-mill” trial and, believe it or not, performing work like this can result in valuable tax credits if the process is documented properly.
But how could something like this impact your company? The federal investment tax credit (ITC) for this type of work would be 15% of your claimed expenditures – with a 35% refundable credit if you’re a qualified Canadian controlled private corporation. In addition, some provinces have fully refundable tax credits that vary between 5% and 20% that can be stacked on top of the federal credit. In these times of increased profits, these refunds can directly impact your tax payables to the CRA.
In good times or bad, ensuring you’re maximizing your cash flow for your business, shareholders and employees is critical. The SR&ED program is a valuable tool that can help you offset the cost of innovation, and help you stay in the black.
Sean Verret is an Associate Partner in the Business Tax Incentives practice at EY Canada, based in Vancouver. For more insights on how to capitalize on the benefits of SR&ED, join the June 24 lunch and learn hosted by EY and NORCAT.