Doug Ashbury
Northern News Services

NNSL (May 03/99) - Northern mines raise only about $5 million a year in royalties for Ottawa, says Robert Lauer.

"If a mine doesn't make money, we (the federal government) don't get money (from them)," Lauer, who is chief of financial analysis and royalty administration with Northern Affairs' mineral resources, said.

That $5-million figure is an average over the past 30 or so years for all three territories combined, he adds.

"Mining is cyclical, at the bottom for metals we get nothing. You take the peaks with the valleys."

As well, the $5- million average is a royalty figure. It does not include corporate federal taxes or federal income taxes paid by employees. Nor does it include fuel excise tax or GST.

Mining royalties are a percentage of net profits -- as defined in the Canadian Mining Regulations -- less deductions for operating costs, depreciation and amortization.

It is anticipated a package of amendments to the regulations will come into force May 15.

One of the big changes includes raising the maximum royalty percentage to 14 per cent from 12 per cent.

In the short-term, BHP could pay nothing in royalties because Canadian Mining Regulation provisions allow mining companies to deduct all their capital costs.

Just like when individuals file income tax returns -- the more you lower your taxable income through deductions, the less income tax you are required to pay.

Another change in the regulations is elimination of the three-year royalty-free period. Depreciation rates have also been increased.

Yet another amendment will give mining companies four months from May 15 to file royalty returns and pay royalties.

The new rules also include a large section on diamond valuation.

Despite royalty tax deductions mining companies can claim, Ottawa will ultimately rake in millions of dollars from BHP.

Over the next 21 years, Lauer said Ottawa could get between $650 million and $700 million in royalty payments from BHP. He stressed that this figure is an estimate and as the mine gets older, figures could change dramatically, possibly by tens of millions of dollars.

"Pay is linked to profitability."

Regardless of just how much BHP and other potential diamond mines will pay, the GNWT is pressing for a control of a bigger share of these revenues.

In last month's budget, the GNWT estimates a net fiscal benefit, based on two NWT-based operating diamond mines over the next 26 years, will be $20 million a year.

Resource development in the GNWT generates revenue for the GNWT from corporate and personal income taxes. But, according to the 1999-2000 budget address, a significant portion of the revenue generated through these sources is offset by reductions in the formula financing grant.

The GNWT estimates Ottawa's total federal benefit at $270 million per year.

Finance Minister Charles Dent said the GNWT has a year to figure out how it will deal with a looming fiscal problem -- revenues which are lower than costs.

For fiscal 1999-2000, surplus money was used to close the gap between costs which were higher than revenues. With the surplus gone, the GNWT now has to find more revenue or cut costs.