LATEST ON INCOME TAXES & INCENTIVES FOR RESOURCE COMPANIES AND INVESTORS

RYAN L MORRIS

Federated Press

RYAN L. MORRIS

3rd Understanding Natural Resources TaxationJune 11 & 12, 2013

Overview

Federal Budget ProposalsFederal Budget Proposals

Other Federal UpdatesOther Federal Updates

Provincial Measures

2

Tax Proposals – Federal Budgetg

Extension of super flow-through share program

Phase out of mining tax incentivesPhase out of mining tax incentives

Narrowing reserve for future servicesNarrowing reserve for future services

Accelerated CCA for clean energy generation equipment

3

Extension of Super Flow-Throughg

15% ITC for grassroots exploration15% ITC for grassroots exploration

Extended for FTS agreements enteredExtended for FTS agreements entered into before April 1, 2014

Use of look-back rule

4

Narrowing Reserve for Future Servicesg

Reserve for amounts received forReserve for amounts received for services to be rendered after tax year

Only intended to capture services provided to customerprovided to customer

Grandfathering

5

Accelerated CCA for Clean Energy Generation Equipment

Expansion of eligible biogas production equipment for Class 43.2p q p

Expansion of cleaning and upgradingExpansion of cleaning and upgrading equipment to treat eligible gases for Class 43 2for Class 43.2

6

Phase-Out of Mining Tax Incentivesg

Phase-out of accelerated CCA forPhase out of accelerated CCA for certain mining assets

Year 2013-2016 2017 2018 2019 2020 After 2020Allowable

Percentage100% 90% 80% 60% 30% -

Grandfathering

7

Phase-Out of Mining Tax Incentivesg

Pre-production mining developmentPre production mining development expenses from CEE to CDE

Y 2013 2014 2015 2016 2017 Aft 2017Year 2013 2014 2015 2016 2017 After 2017

CEE proportion 100% 100% 80% 60% 30% -

Grandfathering

CDE proportion - - 20% 40% 70% 100%

Grandfathering

8

Phase-Out of Mining Tax Incentivesg

Budget 2012 phase-out of 10% ITC on pre-production mining development expenses

Year 2012 2013 2014 2015 After 2015

Exploration 10% 5%Exploration 10% 5% - - -

Development 10% 10% 7% 4% -

Grandfathering

9

Phase-Out of Mining Tax Incentivesg

B d t 2012 h t f Atl ti ITCBudget 2012 phase-out of Atlantic ITC

Y 2013 2014 2015 Aft 2015Year 2013 2014 2015 After 2015

ITC 10% 5% 5% -

Grandfatheringg

10

Phase-Out of Mining Tax Incentivesg

Budget 2011 transition of costs incurred to bring an oil sands mine into production from CEE to CDE

Year 2012 2013 2014 2015 After 2015

CEE proportion 100% 80% 60% 30%CEE proportion 100% 80% 60% 30% -

CDE proportion - 20% 40% 70% 100%

Grandfathering

11

Phase-Out of Mining Tax Incentivesg

Budget 2007 phase out of acceleratedBudget 2007 phase out of accelerated CCA for mining and in situ oil sands projectsprojects

Year 2010 2011 2012 2013 2014 After 2014Allowable 100% 90% 80% 60% 30%Allowable

Percentage100% 90% 80% 60% 30% -

Grandfathering

12

Federal – Bill C-45

Royal Assent on December 14, 2012

Phase out ITCs (Budget 2012)

Expansion of Atlantic ITC for certain electricity generation equipment and clean energy generation equipment

Accelerated CCA for broader range ofAccelerated CCA for broader range of bioenergy equipment

13

Federal – C-48

Bill C-48,Technical Tax Amendments Act,Bill C 48,Technical Tax Amendments Act, 2012

Received second reading in senate

f C 6 2013Referred to Committee on June 6, 2013

14

Bill C-48 – flow-through shares and rightsg g

Changes to FTS provisions, generallyChanges to FTS provisions, generally effective after December 20, 2002

Includes changes to regulations “ ”including “prescribed rights”

Warrants more clearly a FTS

15

Bill C-48 – flow-through warrantsg

Proposed: “flow-through share” means a share (other than a prescribed share) of theshare (other than a prescribed share) of the capital stock of a principal-business corporation, or a right (other than acorporation, or a right (other than a prescribed right) to acquire a share…

Current: “flow through share” means a shareCurrent: flow-through share means a share (other than a prescribed share)… and includes a right of a person to have such aincludes a right of a person to have such a share issued to that person and any interest acquired in such a share

16

Bill C-48 – flow-through warrants g

Issues with draft s. 87(4.4) ( i ti ft l ti )(renunciation after amalgamation)

S 87(4 4 )(c)(ii) and (d)(ii) refer to aS. 87(4.4.)(c)(ii) and (d)(ii) refer to a right to a share that “would, if it were issued be a flow through share”issued, be a flow-through share

Does not address a right that is a FTSDoes not address a right that is a FTS where the “warrant share” is not a FTS

17

Bill C-48 – flow-through warrants g

a right to a FTS is not a “new share” in 87(4 4)(d)(ii) d th f t i l d ds. 87(4.4)(d)(ii), and therefore not included

in s. 87(4.4)(e) and (g)

(e): the investor is deemed to have given consideration to Amalco for the “issue of the new share”

( ) “th h ” h ll b d d t b(g): “the new share” shall be deemed to be a FTS of Amalco

18

Bill C-48 – flow-through sharesg

S. 66(12.66): “last day of the year” toS. 66(12.66): last day of the year to change to “last day of that preceding year”year

S 66(12 6): carves out CDE that isS. 66(12.6): carves out CDE that is reclassified as CEE under s. 66.1(9)

19

Dec. 21, 2012 Technical Amendments

A d ifi d t lAmends specified energy property rules

Tiered partnerships

October 28, 2010 comfort letter

20

SR&ED Administration Update

Completion of SR&ED Policy Review P j tProject

Pilot project re formal pre-approval processot p oject e o a p e app o a p ocess

Enhancing on-line eligibility lf t t lself-assessment tool

Improving Notice of Objection processImproving Notice of Objection process

Collaboration

21

Administration of Section 116

Sale of Canadian resource property andSale of Canadian resource property and timber resource property subject to 50% withholdingwithholding

To get clearance certificate vendorTo get clearance certificate, vendor must pay federal tax

22

Ontario Budget g

Parallel federal budget changesParallel federal budget changes

Mining tax system reviewg y

Continue review and stakeholder lt ticonsultation

Ensure fair return on its resourcesEnsure fair return on its resources

23

Québec – Proposed Mining Tax Regimeg g

New Québec mining tax regimeNew Québec mining tax regime proposed on May 6, 2013

Increased royalties payable

M t f t d tMeasures to foster and promote further investment in mining and processing acti ities in Q ébecprocessing activities in Québec

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Questions?

THANK YOUTHANK YOU

Federated Press Conference3rd U d t di N t l R T ti3rd Understanding Natural Resources TaxationJune 11 & 12, 2013

Ryan L. MorrisPartnerPartnerMcMillan LLP181 Bay Street, Suite 4400Toronto, ON M5J 2T3416 865 7180416.865.7180ryan.morris@mcmillan.ca