Show me the money

In a matter of months, the NWT will begin collecting royalties from mining and oil and gas operators. It’s no small chunk of change: according to Rick Meyers, vice president of technical and Northern affairs for the Mining Association of Canada, corporate taxes and royalties from NWT miners totalled $3.6 billion between 2002 and 2013. And by the end of the decade that number will reach $5.6 billion.

But while the GNWT will do the actual collecting, half of the royalties will get passed on to Ottawa, in part to offset the $1.3 billion in transfer payments the NWT will still get from the federal government.

The GNWT is inheriting the royalty regime currently used by Ottawa. All told, the GNWT will collect roughly $60 million in resource revenues at the end of the 2014-15 fiscal year. That includes the various license costs, fees and taxes companies need to carry out their operations. Yes, we asked for a breakdown of that $60 million—how much of it will come from royalties? How much in, say, land leases?—and no, the GNWT wouldn’t tell us.

So who pays what? It depends. The profitability of individual mines and wells is proprietary info, so it’s impossible to glean how much each project pays to the government.

How do payments work? Both mines and oil wells pay out royalties according to a sliding scale that’s based on how profitable an operation is. For mines, the first $10,000 is royalty free. Beyond that, the first $5 million in profits pays a rate of five per cent, which increases by one per cent per $5 million in profits. The top rate companies can be expected to pay out is 14 per cent for any mine that clears more than $45 million per year. These rates are higher than those seen in the Yukon and Alberta but lower than those used in eastern provinces like Newfoundland and Nova Scotia.

For oil and gas operations, royalty payments begin when production starts—and that, folks, is the only simple part of the formula. For the first 18 months, the royalty is one per cent of gross revenues, increasing one percentage point every 18 months, to a maximum of five per cent, until the producer recovers its initial investment. Then, it either stays at five per cent of gross revenues, or it’s charged at 30 per cent of net revenues—whichever is greater.

With devolution, the GNWT also gains the power to change rates. (Bevington says the first priority should be to switch from a net royalty scheme to a gross one, but that’s another story). So far the territorial government—citing the already high cost of doing business up here—is reluctant to jack up royalty rates. Still, finance minister Michael Miltenberger told Northern Journal that rates will be up for review. “We’re not rushing out to put additional taxes on anybody … but after April 1, we’ll be having a discussion on the structure of our resource economy.”

Up Here Business, March 2014.

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