Canadian companies working in resource exploration or extraction outside of the country will have to start thinking more strategically when it comes to attracting employees. The reason, says Ernst & Young, is because the March 2012 federal budget announced a scheduled phase-out, by 2016, of the long-standing overseas employment tax credit (OETC) for Canadian employees working abroad.
"Mining and metals companies operate in some of the most hard-to-reach regions of the world, where maintaining a skilled workforce is always a significant challenge," says Bruce Sprague, a partner in Ernst & Young's Tax Services practice. "The OETC alleviated some of the difficulty these companies face recruiting talent to positions that are otherwise difficult to fill, and at no additional cost."
The change didn't really come as a surprise. Corporate tax rates have fallen considerably since the OETC's inception, and companies may be more financially fit now to support their own overseas initiatives. But Sprague says that doesn't mean the change won't cause upheaval. "The real problem is the timing: Commodity prices are strong and sector fundamentals look good, and that's reinvigorating investment in new and existing projects around the world," explains Sprague.
As the OETC phases out, the cost of doing business in foreign jurisdictions could rise, forcing employers to raise the stakes on compensation and salary packages—a possibility mining companies need to think about sooner, rather than later.
"Companies that are affected by the elimination of this tax credit should start reviewing their compensation programs and policies and make appropriate revisions today," says Sprague. "By performing cost-modeling, companies can also estimate the financial impact of the OETC phase-out to both their eligible employees and, potentially, themselves."