Canada’s finance minister unveiled a series of legislative proposals on August 4, 2023 aimed at making significant changes to the flow-through share regime, particularly as regards lithium exploration. Although a number of these changes had already been announced in the 2023 federal budget, e.g. the inclusion of lithium brine in the “mineral resources” definition, they had not really affected junior exploration companies in Quebec since this type of lithium is virtually non-existent in the province. More targeted change However, the recent proposals include a more targeted change for mining companies exploring for traditional “hard rock” lithium, which is much more common in Quebec. These proposals include amending the definition of “mineral resources” to systematically includetraditional hard-rock lithium in the list set out in section 248 of the Income Tax Act (the “Act”). The consequences As a consequence of this change, the requirement for mining companies to obtain a certificate issued by Natural Resources Canada will be eliminated. The application process for this certificate represented a heavy administrative burden for exploration companies. Moreover, lengthy processing times often delayed the conclusion of flow-through share subscription agreements. This change is a timely one: growing numbers of companies are refocusing on exploring for lithium rather than for more traditional metals such as gold. This reflects not only the market’s infatuation with lithium, but also the recent 30% tax credit potentially available to investors incurring mining exploration expenses involving critical metals. Proceed with caution For the time being, however, these legislative proposals only apply to lithium; they do not cover all critical minerals. Mining exploration companies should proceed with caution if they plan to explore for other types of critical minerals such as graphite and rare earth elements, for example. This is because a mineral resources certificate issued by Natural Resources Canada may still required in those cases. Our team of professionals specializing in securities, mining law and taxation is available to answer any questions you may have concerning this new measure and to guide you in arranging a successful flow-through financing.
Éric Gélinas Counsel
- Québec, 1993
Éric Gélinas is a member of the Business law group in Lavery’s Montréal office. He assists businesses with complex tax reorganizations and the tax aspects of national and cross-border mergers and acquisitions. He is also interested in the tax aspects of estate planning and inter-generational transfers of businesses.
Mr. Gélinas’s main areas of expertise are corporate tax planning, taxation of corporation reorganizations, and the tax aspects of mergers and acquisitions.
Mr. Gélinas is also a tenured professor in the tax department of the École de gestion de l’Université de Sherbrooke, where he teaches the taxation of corporate reorganization in the master’s (M. Fisc.) program. He is frequently called upon to speak and write articles on the subject of taxation.
Publications and lectures
- Mise à jour et Revue des règles relatives à l'alinéa 55(3)(a) de la Loi de l'impôt sur le revenu (Canada), APFF, 2014 Annual convention
- Règles sur les biens évalués à la valeur du marché détenus par les institutions financières: comment s'y retrouver? Revue de l'APFF, vol.33
- Aspects fiscaux du décès de l'associé, Colloque sur l'impôt au décès, CCH, June 2013
- Sociétés en situation d'insolvabilité - Aspects fiscaux à considérer, Revue de l'APFF, vol. 32
- L’Article 55 et les réorganisations papillons, CCH, 2012
- Développements récents sur les sociétés associées (Recent developments concerning affiliated corporations), journées d’étues fiscaleds, CTF, June 9, 2011
- Conference on recent developments in Canadian case law concerning permanent establishments and the allocation of profits under tax agreements, International Association of Young Lawyers, Barcelona, February 2011
- Jurisprudence récente (Recent case law), Technical seminar, CTF, June 2008
- Acquisition d’entreprises canadiennes par des non-résidents, structures et considérations fiscales canadiennes (Acquisitions of Canadian businesses by non-residents, structures and Canadian tax considerations), Technical seminar, CTF, February 2008
- Règles sur les minimisations de pertes (Stop-loss rules), Technical seminar, CTF, March 2005
- Considérations fiscales relatives aux modes de rémunération pour les employés clés (Tax considerations relating to methods of compensating key employees), APFF, 2005 Annual convention
- Considérations fiscales relatives à l’introduction d’employés dans l’actionnariat (Tax considerations relating to employees becoming shareholders), APFF, 2004 Annual convention
- Aspects fiscaux relatifs aux conventions entre actionnaires (Tax aspects of shareholder agreements), APFF, 2002 Annual convention
- Retrait et arrivée d’un associé et dissolution d’une société de personnes (Withdrawals and arrivals of partners and dissolutions of partnerships), Revue de planification fiscale et successorale, Vol. 20, no 2, 1998
- Master’s Degree in taxation (M.Fisc.), Université de Sherbrooke, 1995
- Master of Laws (LL.M.), Université Laval, 1994
- LL.B., Université Laval, 1992
Boards and Professional Affiliations
- Canadian Tax Foundation (CTF)
- International Fiscal Association (IFA)
- Association de planification fiscale et financière (APFF)
On March 21, 2023, Quebec’s Minister of Finance tabled his budget for the 2023-2024 fiscal year. One of the budget’s key measures is the introduction of a new tax holiday in connection with major investment projects. At first glance, the new measure does not appear to be specifically aimed at the mining industry, but some mining companies involved in the extraction of critical and strategic minerals and planning substantial investments in the near future could greatly benefit from it. Under the new tax exemption, a corporation or partnership that carries out an investment project of more than $100 million in Quebec will be eligible, under certain conditions, for an income tax holiday and a holiday from the employer contribution to the Health Services Fund. As far as income tax is concerned, this new 10-year tax holiday consists of a deduction in the calculation of the company’s taxable income. The deduction is calculated by applying a rate of 15%, 20% or 25% to the cumulative total of eligible project expenditures. Since this tax measure is intended to promote investment outside major urban centres, the rate will vary according to the project’s location, ranging from 15% for projects in areas with high economic vitality, to 20% for projects in areas with intermediate economic vitality and up to 25% for those in areas with low economic vitality. The higher rates of 20% and 25% are more likely to apply to mining projects, which are generally located in remote areas with lower economic vitality. The critical and strategic minerals identified in the context of this measure are the following: antimony, bismuth, cadmium, caesium, copper, tin, gallium, indium, tellurium, zinc, cobalt, rare-earth elements, platinum-group elements, graphite (natural), lithium, magnesium, nickel, niobium, scandium, tantalum, titanium and vanadium. Let’s briefly consider the example of a mining company carrying out a major investment project for lithium mining in the Nord-du-Québec administrative region, designated by the Quebec government as a territory with intermediate economic vitality. During the investment phase, while the mine is being developed and built, the company incurs $200 million worth of eligible expenditures, which are capital expenditures for new mining equipment and heavy machinery for lithium extraction and processing. Evidently, the company will probably sustain a loss during the investment phase, and, because it has no taxable income, it will not be able to immediately benefit from the tax holiday. However, should the company have taxable income of $50 million in year 5, after four years of investment and mine development, it will be able to deduct $40 million of this taxable income under the new tax holiday, reducing its taxable income to $10 million for that year. This $40 million deduction is based on the application of the 20% rate for territories with intermediate economic vitality to the $200 million of eligible expenditures for the mining project. Another point relevant to the mining industry is that the income tax holiday will apply only to tax payable under the provisions of the Taxation Act. In other words, this tax holiday will not reduce the amounts payable under the Mining Tax Act. With respect to the Health Services Fund, companies will generally be eligible for an employer contribution holiday on wages paid to employees for pay periods falling within the exemption period for major investment projects. In order to benefit from this new tax holiday, companies will have to obtain an initial certificate, as well as annual attestations issued by the Quebec Minister of Finance. Our team of professionals specializing in mining and tax law is available to answer all your questions regarding this new measure and to assist you in your mining investment projects in Quebec.
The deficits being generated by the emergency measures that the federal and provincial governments have implemented since March 2020 are a reminder of the magnitude of our governments’ pre-crisis deficits. This situation will inevitably lead to a greater tax burden for businesses and individuals at some point. Despite the unprecedented nature of these circumstances and the difficult financial situations that organizations find themselves in, steps can be taken now to mitigate repercussions. For several years, there has been increasing speculation about the capital gains inclusion rate being increased. Rumours also abound about the potential creation of an inheritance tax, which would undoubtedly be accompanied by a gift tax and a wealth tax. In this context, it is becoming ever more plausible that the federal government will finally increase the capital gains inclusion rate and tax the value of inheritances and gifts as early as the next budget, which has been postponed because of the ongoing crisis. An annual wealth tax on high net worth individuals could likewise be in the pipeline. As is now customary, the measures would apply as of midnight the night before the budget is tabled, closing the door to most tax planning strategies to reduce the impact of such measures. In the face of this situation, several steps can be taken as of now as, for instance: Crystallization of unrealized capital gains using a business corporation, partnership or trust; Gifts of money or property to family members or trusts; Termination of Canadian tax residency in favour of a lower-tax jurisdiction. The majority of tax planning strategies aiming to reduce or postpone the impact of such measures can be reversed should the anticipated measures not be adopted. In the event that governments do not increase the tax burden straightaway or opt for other, difficult-to-predict measures, well-planned transactions, such as realizing an accumulated gain on certain assets, making a direct gift, or making a gift through a trust, will ensure that additional taxes need not be paid. If you would like more information, our taxation team is available to help you.
The current crisis caused by the COVID-19 pandemic has already caused, and will continue to cause, significant liquidity problems for some businesses. Companies whose financial difficulties threaten their very existence will have to restructure in order to avoid bankruptcy, either by availing themselves of the protection of the Companies' Creditors Arrangement Act1 (the "CCAA") or by using the proposal mechanism of the Bankruptcy and Insolvency Act2 (the "BIA"). Tax considerations related to an arrangement or a proposal accepted by creditors Making use of the provisions of the CCAA or the BIA entails tax considerations for the debtor corporation that directors and owner-operators need to consider. Some of these tax considerations are discussed below. In the context of the restructuring of a debtor company, creditors may accept a partial settlement of their claim or a conversion of their claim into shares in the debtor company. If a corporation is not bankrupt within the meaning of the Bankruptcy and Insolvency Act, the settlement of a debt for an amount less than its principal will have tax consequences for the debtor corporation. For example, certain tax attributes of the debtor corporation such as the balance of loss carryforwards, the undepreciated portion of the capital cost of depreciable property or the adjusted cost base of capital assets will be reduced by the amount of the reduction in the receivable, if any. In certain cases, if the tax attributes of the debtor corporation are insufficient to absorb the amount of debt forgiven, inclusion in the calculation of its taxable income may occur, creating a tax liability. Several strategies can be adopted to limit undesirable consequences in the context of a restructuring under the Companies' Creditors Arrangement Act. As mentioned, it may be possible, among other things, to convert the debt into shares of the debtor company without causing adverse consequences, if the fair market value of the shares issued upon conversion of the debt is equal to the principal of the debt. In some cases, a debt held by a shareholder of the debtor company could be written off without consideration and without the need to issue shares. Finally, it may be possible, in certain situations, to avoid inclusion in the income of the debtor corporation through the use of certain reserve mechanisms or through tax deductions. Insolvency is a delicate situation for any business. Proper tax planning will allow the debtor company to maximize the effectiveness of the restructuring process offered by the CCAA. Our taxation team can help you set up effective planning in this context. R.S.C. 1985, c. C-36 and amendments R.S.C. 1985, c. B-3 and amendments
On July 4, 2023, Cultures Gen V, one of Quebec’s leading greenhouse growers, announced the acquisition of Serres Royales. The acquisition furthers Cultures Gen V’s business strategy, which aims to improve Quebec’s food self-sufficiency by expanding sustainable greenhouse growing and offering consumers a wider variety of superior quality products. This transaction makes Cultures Gen V the largest diversified greenhouse grower in Quebec, adding 9 hectares of tomatoes to its current acreage, for a total of 36 hectares. Lavery was privileged to represent Cultures Gen V in the transaction. Not only did the firm implement the group’s pre-transaction refinancing, it also negotiated and closed the transaction. The Lavery team was led by Étienne Brassard with the assistance of Gabrielle Ahélo and France Camille De Mers and the collaboration of Béatrice Bull, Pamela Cifola, Éric Gélinas, Jessica Parent, Chantal Desjardins, James Duffy, Valérie Belle-Isle, Sonia Guérin, Joseph Lauzon-Potts, Arielle Supino, Bernard Trang, Katerina Kostopoulos, Charlotte Dangoisse, David Tournier, Ana Cristina Nascimento, Joëlle Montpetit and Nadine Giguère.
On June 13, 2022, Resonetics announced the purchase of the entirety of the shares of Agile MV, a Montréal-based medical device design and development contract manufacturing company. The transaction was motivated by the quality of expertise that Agile MV's team of engineers, scientists, and technicians possess throughout the entire production cycle, from initial concept consolidation to mass production. Our partner, Audrey Gibeault, had the privilege of representing the company in this major transaction that involved complex tax planning, among other things. In business law, this transaction was led by our partner Étienne Brassard. Ms. Gibeault and Mr. Étienne Brassard were mainly assisted in this transaction by Gabrielle Ahélo. They were assisted by Luc Pariseau, Sonia Guérin, France Camille De Mers, Brittany Carson, Éric Gélinas, André Vautour, Michael Pageau, Maxime Chabot and Charles-Hugo Gagné. —Agile MV is a Quebec-based medical device design and development contract manufacturing company. It specializes in the development of minimally invasive diagnostic and therapeutic medical devices in the following areas: cardiac electrophysiology, interventional cardiology, interventional radiology, interventional pulmonology, interventional gastroenterology, interventional pain management and interventional neurology.Resonetics specializes in advanced engineering and manufacturing solutions for the life sciences industry, laser cutting, centerless grinding, nitinol processing, thin-wall stainless steel and precious metal tubing, photochemical machining, microfluidics, sensor solutions and medical energy.
On June 29, Chronometriq, a North American leader in healthcare management, announced its acquisition of Health Myself Innovations Inc. A Lavery team represented and advised Chronometriq to help them succeed in this acquisition, which will enrich their platform and service offering as well as contribute to the growth of their operations in the United States. Lavery supported Chronometriq for their Series A (financing by a Silicon Valley venture capital fund) and for their Series B (financing by a New York venture capital fund). It is a privilege for us to work towards the expansion of Chronometriq and to contribute to a fast-growing Quebec success story in the field of health technologies. To read the press release, click here.
On October 1, Chronometriq, a Montréal-based supplier of technology that facilitates healthcare access and patient communications, announced that it had received more than $20 million in funding from Full In Partners. This funding will enable our client Chronometriq to strengthen its leadership position in Canada and drive its growth in the United States. Lavery played a significant role in representing Chronometriq’s interests throughout this transaction and helped it take on the kinds of challenges high-growth startups face when negotiating major funding. Chronometriq, founded in 2012, was named one of the 25 most innovative companies by C2 Montréal. It is now a leader in digital healthcare management, thanks to its range of comprehensive appointment management products suited to both clinics and patients. In the past year alone, Chronometriq has served 12 million users through the network of North American clinics that use its products. This mandate was successfully completed thanks to the extensive expertise of the Lavery team led by Jean-François Maurice and made up of Éric Gélinas, Felicia-Yifan Jin, Ali El Haskouri, Tina Basile, Guillaume Laberge, Florence Fournier, Shereen Cook and Pierre-Olivier Valiquette.