McGuinty Government Announces Made-In-Ontario Diamond Royalty System

Archived Release

McGuinty Government Announces Made-In-Ontario Diamond Royalty System

Ministry of Finance

Deductions Boost Mining Competitiveness, Recognize Benefits to Aboriginal and Northern Communities TORONTO, July 5 - The Ontario government today finalized details of its diamond royalty system with the introduction of unique made-in-Ontario deductions that support the expansion of Ontario's developing diamond mining industry while benefiting Ontarians. "This new system acknowledges the unique challenges associated with mining in Northern Ontario," said Rick Bartolucci, Minister of Northern Development and Mines. "The additional deductions provided in the diamond royalty will encourage the long-term sustainability and global competitiveness of diamond production in Ontario, and support investments in diamond mining communities - in particular northern and aboriginal communities." With the new deductions, the government is completing the work on the royalty system it began in the 2007 Budget. The Ontario diamond royalty will be calculated on net profit less allowable deductions, paralleling the Canada Mining Regulations in other Canadian diamond-mining jurisdictions. In addition, Ontario will allow the following deductions to further encourage and support diamond mining and community and economic development in Ontario: - A 100 per cent deduction for qualifying expenditures made under agreements with aboriginal communities or municipalities; - A 100 per cent deduction for qualifying donations in Ontario of a charitable, educational or benevolent nature; and - An additional 15 per cent allowance for the cost of establishing and operating a new diamond mine in Ontario. This allowance will be in addition to the allowable deductions for such expenses already available under the royalty, and limited to a maximum 20 per cent of annual net profit. Qualifying expenses for this allowance will include salaries and wages, training costs, infrastructure investments, exploration, research and development, charitable donations and payments to municipalities or aboriginal communities. Contact Info A key feature of Ontario's diamond royalty is the progressive rate structure. "To ensure fairness, our diamond royalty will work on a sliding scale, which could be lower than four per cent," said Finance Minister Greg Sorbara. "With our Ontario-specific deductions, not only are we encouraging investments in local communities, we are supporting the expansion and development of Ontario's diamond mining industry while making it even more competitive." Ontario will also follow the CMR practice of valuing stones and setting royalties before they leave the province. This is another example of how the McGuinty government is working with Ontarians to strengthen the province's global competitiveness through Ontario's Mineral Development Strategy. Other examples include: - $15 million over three years for geological mapping in the Far North, - One-stop Internet access to services for the province's mineral exploration and development industry, - $60 million over six years for clean-up of abandoned mines to protect the public and environment, - $10 million to launch the Centre of Excellence for Mining, an initiative that will conduct research in areas such as mining exploration, deep mining research, tele-robotics, automation and reclamation. The mineral development strategy is one of several Northern Prosperity Plan initiatives aimed at bringing renewed economic strength to northern, aboriginal and rural communities. The prosperity plan's four pillars are: Strengthening the North and its Communities; Listening to and Serving Northerners Better; Competing Globally; and Providing Opportunities for All. Disponible en français For more information visit www.fin.gov.on.ca Backgrounder ------------------------------------------------------------------------- July 5, 2007 IMPROVING COMPETITIVENESS FOR DIAMOND MINING IN ONTARIO The Ontario 2007 Budget announced a diamond royalty and valuation system based on the Canada Mining Regulations (CMR) that would ensure long-term sustainability and global competitiveness of diamond production in Ontario. The government also excluded diamonds from taxation under the Mining Tax Act, effective after March 22, 2007. At that time, the government announced that details of Ontario's diamond royalty system would be forthcoming following discussions with stakeholders. Following these discussions, the Ontario government today finalized details of its diamond royalty system. The CMR is the law governing mining and mineral royalties for the Northwest Territories and Nunavut. Among other things, it imposes a royalty on the profits of a mine, after various deductions for exploration, development and operating expenses. The rate for the CMR royalty is progressive, in that it increases with the profitability of the mine. The Ontario diamond royalty will be calculated on net profit less allowable deductions. Similar to the CMR, Ontario will allow various deductions related to exploration, development and operating expenses. In addition to adopting the CMR, Ontario will allow deductions to further encourage and support diamond mining and community and economic development in Ontario. The Ontario-specific deductions will apply for payments to aboriginal communities or municipalities, and for charitable, educational or benevolent donations. An allowance will also be provided for the cost of establishing and operating a new diamond mine in Ontario, including local infrastructure development similar to other Canadian jurisdictions. Ontario is introducing a bonus deduction of 15 per cent for these eligible costs to a maximum of 20 per cent of annual net profits, recognizing the incremental costs and economic benefits of operating a diamond mine in Ontario's north. With the deductions, the effective diamond royalty rate in any one year will range from 4.0 per cent to a maximum 10.4 per cent. The effective royalty rate would be reduced even further with investments in aboriginal and local communities. The following table provides an example of the impact of the Ontario-specific deductions on the effective diamond royalty rate in Ontario. ------------------------------------------------------------------------- Effective Rates under Ontario's Diamond Royalty(1) ------------------------------------------------------------------------- Diamond Royalty Diamond Royalty After Net Profit Before Allowance Ontario Allowance in a ------------------------------------------------------------ Year(2) Effective Effective Diamond Diamond Royalty Royalty Royalty Royalty Payable Rate(3) Payable Rate(1,3) ------------------------------------------------------------------------- Up to $10,000 $0 0% $0 0% ------------------------------------------------------------------------- $5 million $250,000 5% $200,000 4% ------------------------------------------------------------------------- $56 million $5.6 million 10% $4 million 7.2% ------------------------------------------------------------------------- $225 million $29.3 million 13% $23 million 10.2% ------------------------------------------------------------------------- $281 million $36.5 million 13% $29.3 million 10.4% ------------------------------------------------------------------------- Over 13% 10.4% $281 million ------------------------------------------------------------------------- (1) Illustrates the impact of the 15 per cent allowance on costs at the maximum 20 per cent of net profit. The effective rate of Ontario's diamond royalty could be lowered further by the other Ontario-specific deductions, such as those for charitable donations or payments to aboriginal communities or municipalities. (2) Net profit for royalty purposes is gross revenue less permitted deductions. Diamond mining operations could be expected to deduct exploration and development costs in the early years of production, which would substantially reduce net profit in those years. (3) Represents average effective diamond royalty rate calculated as royalty payable/net profit in a year. ------------------------------------------------------------------------- The new diamond valuation process also addresses the unique characteristics of rough diamonds. Unlike traditional mineral commodities, the value of diamonds varies widely based on colour, clarity and size, whereby individual stones influence a mine's production value. The process for selling rough diamonds is also different from other mineral products as diamonds are rarely traded, site-unseen, on the open market. Ontario will follow the CMR practice of valuing stones and setting royalties before they leave the province. As well, an expert diamond royalty "valuer" will examine diamonds produced in Ontario and establish a fair-market value. Paralleling the royalty and valuation systems of other Canadian diamond-mining jurisdictions, while also providing Ontario-specific deductions to support the diamond mining industry, will ensure the long-term sustainability and global competitiveness of diamond exploration and production in Ontario. The new systems will also ensure that diamond producers across the country work under a similar, understandable process of royalty and valuation, recognizing the right of all Ontarians to fair payment for the province's resources. Finally, the new Ontario diamond royalty and valuation systems also acknowledge the associated benefits that diamond mining investments bring to Ontario families and local businesses, particularly in northern and aboriginal communities. Contact: Simon Proulx Ministry of Finance 416-327-9190 Disponible en français www.fin.gov.on.ca For further information: Trina Melatti, Minister's Office, (416) 325-4685; Scott Blodgett, Ministry of Finance, (416) 325-0324 HELP | CONTACT US | PRIVACY | IMPORTANT NOTICES © Queen's Printer for Ontario, 2008-2009 — Last Modified: February 15, 2009 For further information: Trina Melatti, Minister's Office, (416) 325-4685; Scott Blodgett, Ministry of Finance, (416) 325-0324