Mining Exploration Tax Credit Extended in British Columbia
In British Columbia, the Mining Exploration Tax Credit is a refundable tax credit worth a portion of eligible exploration expenses. The credit was set to expire on Dec. 31, 2016, but the province extended it through 2019.
Only corporations may claim the METC, but this includes corporations that are active members of partnerships. Unfortunately, limited partnerships cannot claim this credit, nor may individual taxpayers. However, if you are an individual taxpayer who purchased flow-through shares, you may qualify for the Mining Flow-Through Share Tax Credit. This is a separate credit that was also set to expire in 2016, but like the METC, was extended.
The METC covers a portion of expenses related to grassroots mineral exploration in British Columbia. This includes searching for the presence or exact location of a mineral resource and investigating the extent or quality of a mineral resource such as coal, base metals, precious metals, or industrial minerals. For example, prospecting, geological surveying, and preliminary sampling are all considered eligible expenses. In contrast, expenses related to drilling for oil and gas do not qualify.
Amount of the Credit
In most cases, the credit is worth 20% of eligible expenses. For example, if you incur $100,000 worth of
qualifying exploration expenses, you may claim an METC worth $20,000.
However, if you received any assistance such as grants, subsidies, or other tax rebates, you must subtract that amount from your expenses before calculating your credit. To explain, imagine you spent $100,000 on exploration and received a grant for $10,000. In this case, you may only base the credit on $90,000 of expenses, and that makes your METC $18,000.
METC in Mountain Pine Beetle-Affected Areas
If you do qualifying exploration work in an area affected by the mountain pine beetle, you become eligible for the expanded METC, worth 30% of expenses. For instance, if you incur $100,000 of expenses in one of these areas, your credit is $30,000.
The mountain pine beetle is a native insect that attacks pine trees. Since the early 1990s, this beetle has killed roughly half of the commercial lodgepole pine in British Columbia, and it has also begun attacking jack pine. Affected areas spread throughout British Columbia and into northeast Alberta. However, the METC only covers exploration activities in beetle-affected areas in British Columbia, and the government of British Columbia offers maps of these areas at Mineral Titles Online. To see which areas are considered affected by mountain pine beetles, refer to the site’s Mineral Maps or Placer Maps. You may also download and print free detailed maps in PDF format from this website.
How to Claim the METC
To calculate your METC, you must complete Schedule 421, British Columbia Mining Exploration Tax Credit. Then, transfer the amount of your credit to line 673 of Schedule 5, Tax Calculations Supplementary – Corporations. Include both of these schedules with your T2 Corporation Income Tax Return when you submit it to the Canada Revenue Agency.
If you are a member of an eligible partnership, you must also complete Schedule T1249, British Columbia Mining Exploration Tax Credit Partnership Schedule, and submit it with your return. This schedule guides you through the process of calculating your portion of your partnership’s METC.
To claim the METC, all expenses must be incurred before Jan. 1, 2020. If you incurred the expenses prior to Jan. 1, 2017, you must claim the credit within 36 months after the end of the tax year in which the expenses occurred. For example, if you incurred qualifying exploration expenses in November 2016, the last day of that tax year is Dec. 31, 2016. As a result, you must claim those expenses by the last day of 2019.
If you incurred eligible expenses on or after Jan. 1, 2017, you must claim the METC within 18 months after the end of the tax year. As a result, if you incurred exploration expenses in November 2017, you must claim them by June 30, 2019. The last day of the tax year is Dec. 31, 2017, and June 30, 2019, is 18 months past that date.
Unfortunately, you cannot carry these credits forward or back. Once the window identified above has passed, you may no longer claim these credits. Additionally, you may not apply these credits to a previous year’s return. However, the METC is a refundable credit. As a result, if the credit more than covers your income tax bill, you receive the remaining amount as a refund.
To explain, if your corporation qualifies for an METC of $20,000, but you only owe $15,000 in income tax, the CRA will send you a refund for the remaining $5,000. However, if your corporation owes back taxes, the refund will be applied to that amount first.