The B.C. government has lost a second round in its legal fight with Teck Resources (TSX:TECK.B) over how much tax it can or can’t deduct for exploration expenses.
In January, the BC Supreme Court ruled against the province and in favour of Teck when it determined that Teck was entitled to claim 100% of its exploration expenses on the Galore Creek mine development project and apply it to another one of its mines for tax purposes.
The dispute arose when the BC Ministry of Finance determined Teck was eligible to claim only 50% of its exploration expenses on Galore Creek because it was not the sole owner.
During the period in question – 2010 and 2011 -- Teck was in a partnership with NovaGold Resources (TSX:NG) on the Galore Creek project in northwest B.C. Newmont Corp. (TSX:NGT) is now Teck's new partner in the Galore Creek Mining Corp.
While NovaGold contributed mineral claims and all related infrastructure as part of its contribution to the partnership on the project, it was Teck that incurred the exploration expenses – about $9.9 million over two years.
Under the Mineral Tax Act (MTA), a company that owns more than one mine is permitted to claim exploration expenses for one mine and apply it, for tax purposes, to another mine.
In Teck’s case, the company claimed 100% of the expenses for Galore Creek but claimed the expenses for its Highland Valley copper mine, which it owns outright.
The Ministry of Finance denied that claim, saying Teck could only claim 50% of its exploration expenses for Galore Creek, since it was not the sole owner, but a partner. However, as the court pointed out, NovaGold did not claim any exploration expenses for Galore Creek for the period in dispute.
“The evidence is that NovaGold has not claimed any of the costs funded by the petitioner,” the B.C. Supreme Court noted in its ruling earlier this year.
In her ruling, Justice Laura Gerow concluded that Teck was responsible for 100% of the exploration expenses on Galore Creek for the years in question and was therefore entitled to claim 100% on its taxes. She ordered the matter be referred back to commissioner of mineral tax for an adjustment.
The B.C. government appealed that decision, but in a ruling issued today, the B.C. Court of Appeal dismissed the province’s appeal.
The Appeal Court said the province was raising questions over contractual agreements, not statutory interpretations. It suggested a partner’s share of tax obligations will vary according to the partnership in question.
In dismissing the appeal, the court said “there is limited importance to the appeal because a partner’s proportionate share will depend on the particular partnership agreement and the appeal will not provide general guidance about the concept of capital as the judge was not required to grapple with that concept.”