On March 28, 2024, the Department of Finance Canada announced a one-year extension to the 15% Mineral Exploration Tax Credit (“METC”) available to investors in flow-through shares. The extension means that the METC will be effective until March 31, 2025. This announcement came at a time when uncertainty loomed over the industry and some stakeholders feared that the government would not renew the METC. Over time, this tax credit has become a key component of flow-through share financings. It is intended to enhance the tax deductions already available to flow-through share holders and ultimately help companies raise capital for mineral exploration. The METC was last renewed in 2019 for a five-year period, indicating the government’s long-term commitment to the sector at that time. And while this renewal is welcome news for exploration companies, it should be noted that the shorter one-year horizon of the extension does not provide the same assurance regarding the incentive’s future. It is possible that this one-year renewal reflects the government’s intention to promote the new 30% Critical Mineral Exploration Tax Credit (“CMETC”) instead, on which more information can be found here: Federal Budget 2022: Good News for Mining Exploration Companies! In closing, it is important to note that the one-year extension to the 15% METC will not affect the period during which the 30% CMETC is available for critical mineral exploration, which will end on March 31, 2027, and is subject to renewal. If you were planning on financing non-critical mineral exploration, you may want to complete this transaction in the coming year in order to benefit from the 15% METC. 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.

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.

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.