Here is, below this preamble, a table of how taxation actually works out in Quebec.
It is an example of why they call it "mine friendly". Note that the company actually pays miniscule provincial corporate taxes, but a fair mining tax, with very little in the first years because of write downs, which are very generous, but straight line. There could be improvements without the government "losing money", as offsetting factors because of increased vats and salary taxes with more mines would be good, to put it simply.
That is to improve flow through federally and make it so that investment losses could be subtracted from taxes, and losses in capital deducted from gains as they occur.
And to make it more palatable for the average investor to invest in flow thru, make PP's more reachable by the average bucket shop guy. Bring the net worth requirement for accredited or sophisticated investors down to 400K cash and property, discluding principle residence, which opens it up to smallish business people, and companies with say $1.0 million net worth . (It is 5 million in Ontario.) Small, ok, but the people are not automatically idiots because they want to hand a mining company or any other company $10K to $50K with a half warrant. Play it right in most markets and it's a very good deal to take PP's.
They should lower the minimum amount of PP's to 25K min for these people. Flow through should be allowed 25% tax break, not credit so the gov does not have to come up with cashola to give back. Carry forwards and carry backs made 15 years each way for flow through deductions. If you are launching companies and making jobs then the ability to take your income down to say a 10% tax rate should be allowed. They should change RRSPS's so that flow through or capital gain aspect of them is preserved when they take it back out, and also the difference calculated on the difference between the real buy price (minus tax deductions and grants) and the real selling price minus costs. This would mean the flow through tax deduction if you put it into an RRSP (which again should be enlarged to 50K per year) would be 225%. At a marginal tax rate of say 30%, the cost of the shares is minus 67.5% They really would pay 37.5 cents on the dollar for their shares. They can just about do this in Canada now for 20K or more on RESP and RRSP's with flow through at slightly higher tax rates, say 34%.
This might sound outrageous to some politicians, who are revenue hungry, and eye their fave programs winking out like xmas tree lights as the tax deducts flow in on returns everywhere, but think on this. The company normally gets the money and spends it as a 100% expense against future income. If they all make mines it all gets deducted anyway. When they buy goods and services with the money, some $1.7 billion in 2007 in Canada, there is VAT on that and considerable income and corporate tax generated. Perhaps 30% or more. Now the people who did this risked a loss of income in a major way. They are gambling on making anything at all.
For that largesse they are forced to pay tax as if the bought the stock for nothing, and the capital gain portion is called 50% of the selling price of the flow through stock. This means that they pay at a 30% marginal rate, 15% of the total sale price in taxes. How much would the government lose if they enlarged flow through slightly? (it is 120% now, and we can RRSP and RESP the proceeds too.) Well if the stocks all went down zero, the investor would hang on to the loss of 37% in this example. Perhaps a bit more if he did not RRSP it. If the stock goes up 25%, then he pays 30% times 50% of 25%, which is his gain. So he pays 3% of the sale price as tax.
The alternative if he does not invest is to pay 30%, in our scenario, of his net taxable income to the government. If he paid it all into flow thru stock, he takes a terrible risk that he does not recover more than say 25% of it in a bear market. And I think we know they come around now and then.
So where does the money go? Does the government have a right to ask for revenue neutral tax incentives? How much will they give up to stimulate the economy in a real way... jobs, foreign exchange, growth, foreign investment dollars. What does this creat? Well lets say we spend 2 billion a year for the next ten years on finding mines in Canada. Lets' say we also allow CDN companies to get tax breaks on overseas investments. Lets say we let in US investors for PP's in an unlimited sense. That would expand our mine investment capital by about 5 times at least.
So now we give US investors flow through and tax breaks on CDN properties. And to top it off since they pay capital gains tax back home we cut their cap gain in our country down to 1/4 of what we normally charge. What will this do? We have to have a way of calculating the mine creation and tax revenue increase to allow government to make offsetting calcuations. Hard to do? I don't think its that hard. We can say that for every so many dollars and so many properties there are so many mines found. Take Teck, Noranda, Cominco, Sherritt Gordon, etc and a few quality juniors and take a look to see what tax revenue they paid in hidden taxes on exploration expense. And historically we can easily calculate the mines they made. Forward projections are good to go with as technology and metal prices improve. Only regs get tougher really.
My bet is goods and services alone were major, say 10% hidden even with GST allowance. Salaries have to come to 50% of the whole so, at least 9% more there. Corporate taxes on good supplied has to add another 25% of the remainder of the pie, so another total 10%. We have 29% they get back on the expenditures. Now it cost them 70& of the flow through spent which is hidden let's say an average of 50% with taxes.
So the government largess is 35% of total expenditures over what they would have collected.
How many mines, come back in from that $20 billion which is a "real $7 billion loss" over ten years to the government? Let's say they find one 10 million ton sulfide mine, one diamond mine, and 5 gold mines. Small change, right? Gold mines now are $2 billion or they don't go. Diamonds about $10 b ditto sulfide. So $40 billion in revenues, or just about what Canada's economy was in 1960 in those dollars.
Workers are now miniscule, diamonds and sulfide lets say 2000 jobs, and gold mines about 2000. 4,000 workers. 400 million in salaries per year. Capex on 20 billion in return over 10 years is a write off of $2 billion. What does the government 'make' on this -- never mind cost-benefit. Just dollars to dollars.
1. jobs income taxes $100 mill per year - $1 billion total
2. capex corporate from good ands service 20% tax on tax corporate income etc -- $400 million
3. corporate and mining taxes over ten years on $40 billion. -- $14 billion.
Now they spent how much with all those "lost dollars" in flow through tax deductions?
$7 billion in 10 years hypothetically.
How much did they make in this totally fair scenario? $15.4 billion? Totally fair estimates.
We have built more mines than that in ten years and they made more money for government. The taxes hidden and real worker income and g and s corporate for all cash flows were more than that. Now the question is should governments be making money with our money? Do they need to make a profit on it? No. They could give it ALL back to the investor - cash negative! and still be ahead. All they have to get back is what they would have collected. And who says they should collect that anyway. Anybody whose taxes out there are too low? They have a new form out of Ottawa, the simplified T-10. It has two lines on it. Ignatief designed it. First line says "How much did you make this year?" Second line "Send it in"
We did not count industry growth spin offs to communities, hidden benefits and reduced EI, increase EI and pension fund payments, investment etc.. health, welfare, technology growth.. it goes on. Build a small mine more than 1000 people benefit. The ratios can go to 25 to one person employed at the plant. Look at Sudbury Ontario. Mining town. 100,000 people. Timmins. Mining town. 50,000 people. Toronto. Mining town. 4.5 million people. Don't laugh. It is the leading mine financing center in the world. Bar none.
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