Modest improvements in tax rules

"Although the April 19, 1983 federal budget appears to put greater emphasis on new or expanded government spending programs in an effort to get Canadians working again, the budget proposals contain a light sprinkling of tax changes which could be of some direct benefit to the mining industry.This month, Tax Notes examines some of the more important of these changes.IntroductionSome sectors of Canada's mining industry could benefit from the proposed income tax changes announced by Finance Minister Lalonde in delivering his budget address to the House of Commons on April 19, 1983. Improved depletion allowance rules, expanded investment tax credits, better use of business losses, and inflation proofing of personal capital gains on Canadian common shares are all part of the measures included in Mr. Lalonde's first budget to try to reinvigorate the battered Canadian economy.Improved DepletionUnder the Income Tax Regulations, a taxpayer who incurs Canadian exploration expense (and certain other eligible expenses) is permitted to deduct not only the full amount of the Canadian exploration expense (""CEE""), but also an additional allowance (the so-called earned depletion allowance) equal to one-third of the CEE. Thus, a taxpayer in certain circumstances can claim a deduction of $1.33 for each $1.00 of eligible expenditure, including CEE.Although CEE can be deducted from any source of the taxpayer's income (for example, from investment income, salary income, and so on), prior to budget date the earned depletion allowance was deductible only from the taxpayer's resource profits. This restriction on the deductibility of the earned depletion allowance substantially reduced the attraction of the allowance: few individual investors or investment companies, for example, have the required stream of resource profits, at least when the CEE or other eligible expenditure is made."