Quebec plans to introduce new explorer incentives

The province of Quebec started the resurgence in exploration when it introduced its Quebec Exploration Account dedution back in 1980. The federal government brought in the Mining Exploration Depletion Allowance in 1983. When it proved successful, Quebec adopted the meda rules and allowed the Quebec Exploration Account provisions to lapse.

The federal government has now started to phase out the meda program. Since it has become apparent that the meda phase out will severely curtail flow-through financings, Quebec has announced a new program in order to maintain a favorable fiscal environment for exploration in that province. The proposal is to reinstitute a modified version of the Quebec Exploration Account deduction effective for expenditures incurred after June 30, 1988 and prior to January 1, 1990. The intention is to maintain, for Quebec income tax purposes, the 133 1/3% deduction for mining exploration expenses incurred in Quebec. In addition, the proposed measures would provide a 133 1/3% deduction for oil and gas exploration expenses incurred in Quebec after June 30, 1988 and before January 1, 1990.

The new deduction is to be available to individuals resident in Quebec, who incur elegible exploration expenses in Quebec either by way of flow-through share renunciations from an eligible corporation, or through an eligible partnership. The new deduction is to be 33 1/3% of the eligible expenses. Expenses eligible for the new deduction will not also be eligible for the meda. The meda, at the reduced 16 2/3% rate, will still be available for exploration expenses incurred outside Quebec. In either case, the eligible expenditure itself can be written off 100%.

An eligible expense for purposes of the new Quebec deduction will be either a mining exploration expense in Quebec or an oil and gas exploration expense in Quebec, incurred or deemed incurred after June 30, 1988 and before Jan 1, 1990. In the case of an expense incurred under a flow-through share agreement that is eligible for the 60 day claw back, the period is in effect extended to March 1, 1990.

An eligible corporation, in the case of a flow-through share agreement, is to be a corporation whose main activity is exploration and which does not operate a mine or oil and gas well and which is not controlled by, and does not control, another corporation that does operate a mine or oil or gas well. Accordingly, the financing benefits are to be restricted to exploration companies that are not part of a corporate group that has any production.

Similarly, an eligible partnership will be a partnership whose main activity is exploration and which does not operate a mine or oil or gas well and none of whose members is a corporation other than an eligible corporation.

Quebec is to be commended for once again taking the lead in providing support for the exploration activities that are such a critical factor in the continued health of the resource industries. Now it is time to work even harder to make the federal government understand the importance of a strong exploration sector and the need to continue broadly base tax incentives in support of that sector.