Ontario’s Pitiful Mining Tax

This table displays the mining taxes and royalties paid for minerals – including coal, but excluding oil and gas – to Canada’s major mining jurisdictions in 2010. The ideal would be to compare these charges with economic rent, which varies by mine and is difficult to calculate.

However, even a simple comparison to overall production values suggests that provincial governments are collecting very low returns on publicly-owned minerals. (The excluded jurisdictions – PEI, Nova Scotia, the Yukon and Nunavut – each produced less than one-third of a billion dollars.) Monetary amounts are in millions of dollars.

The following is an abridged version of yesterday’s presentation from Wayne Fraser, United Steelworkers district director for Ontario and Atlantic Canada, to the Commission on Quality Public Services and Tax Fairness.

Ontario is not always considered a resource-rich province. Certainly, it does not have a large oil and gas industry. However, Ontario has the most valuable mineral production of any Canadian province or territory.

In 2010, the most recent year for which statistics are available, nearly eight billion dollars of minerals were extracted from Ontario, including two billion dollars of gold, a billion dollars of copper and a billion dollars of nickel.

These resources belong to the people of Ontario. They should be a major source of provincial revenue.

However, mineral revenues do not even appear in the provincial budget. The Ontario Mining Tax is rolled into a residual category called “Other Taxes.”

A report prepared for the Mining Association of Canada reveals that Ontario’s Mining Tax revenues were $82 million in 2010 (Table 2). Natural Resources Canada reports that miners extracted almost eight billion dollars of minerals from the province that year.

In other words, the mining industry’s own figures show that it paid the province little more than one percent of the value of minerals extracted from Ontario. That’s the lowest rate of return collected by any of Canada’s major mining jurisdictions.

Saskatchewan, the Northwest Territories, British Columbia, Quebec, and Newfoundland and Labrador all collect more mining revenue than Ontario even though none of those jurisdictions produce as much mining output as Ontario. Why do we collect such a poor return on our non-renewable resources?

One problem has been cuts in the Mining Tax Rate. Between 2000 and 2004, the provincial government slashed this rate from 20% to 10% of profits for non-remote mines and to only 5% of profits for remote mines.

By contrast, Quebec raised its mining tax rate from 12% in 2010 to 16% this year. Manitoba, our other neighbouring province, has a sliding scale ranging from 10% to 17% of mine profits.

Most other provinces also levy higher statutory rates than Ontario. There is clearly room to increase Ontario’s Mining Tax rate.

However, this rate is paid on only a fraction of mine profits. First, many non-metallic minerals extracted from quarries are excluded from the Mining Tax Act altogether. Second, those mines that are subject to the Act can claim many deductions and write-offs.

In 2007, the Ontario government introduced a diamond royalty of up to 13%, somewhat higher than the Mining Tax rate. But at least until recently, De Beers was not actually paying any royalty on its mine near Attawapiskat.

Well-targeted incentives to promote new investment, hiring and training may be warranted. But the Ontario government should thoroughly review its Mining Tax and diamond royalty structures with a view to closing loopholes that do not effectively serve these purposes.

Of course, mining companies would object that they also pay corporate income tax in addition to the Mining Tax or diamond royalty. However, all industries in all provinces are subject to corporate tax regardless of whether they extract non-renewable resources. Corporate tax does not compensate the people of Ontario for their resources.

In fact, resource companies in Ontario enjoy a unique corporate tax break. The federal government and all other provincial and territorial governments allow them to deduct mining tax and royalty payments from profits in calculating corporate income tax.

Ontario instead allows them to deduct a more generous “resource allowance,” equal to 25% of profits. After subtracting this allowance, Ontario’s corporate tax rate for resource companies is the lowest in Canada.