In addition to the provincial share of income tax generated by freehold minerals, certain provinces levy a tax on production from freehold minerals.
Historically, Crown royalties and freehold mineral tax paid to provincial governments were a non-deductible expense for federal income tax purposes. Prior to the 2003 tax year, this non-deductibility was compensated for by a 25% resource allowance which the federal government allowed taxpayers to deduct against their resource income. At the request of the energy industry, the federal government phased out resource allowance during the 2003 – 2007 tax years, and concurrently phased in the deductibility of Crown royalties and freehold mineral tax. In 2003, 90% of the resource allowance was claimable, 75% in 2004, 65% in 2005, 35% in 2006 and 0% thereafter. Ten percent of mineral tax was deductible in 2003, 25% in 2004, 35% in 2005, 65% in 2006. Crown royalties and freehold mineral taxes have been fully deductible against production royalties since the 2007 tax year.
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