Canada's resource sector faces new labour challenges with elimination of OETC: Ernst & Young

Mining and metals companies' ability to attract and retain talent takes hit hard

VANCOUVER, April 26, 2012 /CNW/ - Tax changes mean Canadian companies undertaking resource exploration or exploitation abroad will have to think strategically when it comes to attracting talent and keeping their growth strategies on schedule over the next four years, says Ernst & Young.

That's because the March 2012 federal budget sent shockwaves through Canada's mining and metals sector when it announced the scheduled phase-out of the long-standing overseas employment tax credit (OETC) for Canadian employees working abroad by 2016.

"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, 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."

But the change doesn't necessarily come as a surprise. Corporate tax rates have fallen considerably since the OETC's inception, and companies are more financially fit to support their own overseas initiatives. Sprague says that doesn't mean it won't cause upheaval. "The real problem is the timing. Commodity prices are strong, and sector fundamentals look good. That's reinvigorating investment in new and existing projects around the world — just as the support for those initiatives dries up."

Sprague says adding this twist for an industry already on the brink of a global skills shortage creates a perfect storm of risks that could hamper the industry's ability to staff critical overseas positions now and down the road.

As the OETC phases out, the cost of doing business in foreign jurisdictions could rise, forcing employers to increase the stakes on compensation and salary packages — a possibility mining companies need to think about sooner, not 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-modelling, companies can also estimate the financial impact of the OETC phase-out to both their eligible employees and potentially themselves."

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