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.
Charles-Hugo Gagné Lawyer
- Québec, 2020
Charles-Hugo is a lawyer in the Business Law group and a member of the firm’s tax law team.
In the course of his practice, Charles-Hugo participates in planning, analyzing and implementing tax structures and strategies as part of major commercial transactions, both in Canada and abroad.
He is involved in mergers and acquisitions, financing efforts, purchase and sale transactions and corporate reorganizations, among others. He also participates in estate planning and trust creation and is called upon to assist and represent clients in the resolution of disputes with tax authorities.
Prior to joining Lavery, Charles-Hugo was a legal advisor in the capital markets and wealth management team of a major Canadian financial institution, where he worked with various business units, both for institutional clients in the capital markets and in securities brokerage and custody activities.
He also advised private pension funds on the regulatory and legal implications of their investments in various Canadian and international private equity and venture capital funds.
Charles-Hugo also had the opportunity to work for an international law firm in Brussels, Belgium and to represent Canada during an economic and diplomatic mission in China.
- Participated in the guidance and representation of Agile MV, a Quebec company specializing in medical device design, in the purchase of all its shares by Resonetics, an American company backed by major American private equity firms Carlyle and GTCR.
- Participated in the tax structuring of Premier Park LLC for the purchase of Groupe Calypso-Valcartier’s shares.
- Co-author, “Transfert de votre entreprise au sein de la famille : fini les désavantages,” Audrey Gibeault and Charles-Hugo Gagné, AQMAT, Spring 2022
- Author, “Federal Budget 2022: Good News for Mining Exploration Companies!”, April 2022
- Speaker: “Fiscalité minière et actions accréditives : Aspects pratiques et techniques” (Mining taxation and flow-through shares: practical and technical aspects), Internal refresher course for the firm’s securities paralegals, November 29, 2023
- Speaker: “Introduction to Flow-Through Shares and Mining Taxation”, Internal conference for the firm's professionals, October 20, 2022
- Canadian Finalist – Philip C. Jessup International Moot Court Competition 2018:
- Francophone Oralist, 1st place, Applicant Memorandum, 1st place, and Combined Memorandum in Canada, 2nd place
- Dean’s Honour List, University of Ottawa
- Scholarship for Academic Excellence, University of Ottawa
- LL. M. Taxation, HEC Montréal, 2022
- LL.L., Cum Laude, University of Ottawa, 2018
- Certificate in Chinese Law, China University of Political Science and Law, 2016
Boards and Professional Affiliations
- Marie-Vincent Foundation Young Leaders Circle – Young Leader
- Young member (student affiliate), Ordre des Administrateurs Agréés du Québec (Adm.A.)
- Member, Association de planification fiscale et financière (APFF)
- Member, Canadian Tax Foundation (CTF)
- Member, Young Canadians in Finance (YCIF)
- Member, Young Mining Professionals Montreal (YMP)
On March 21, 2023, during his traditional budget speech, the Minister of Finance of Québec announced that Quebecers will benefit from a general reduction in personal income taxes starting in 2023. The effect will be a reduction in the tax rates that apply to the first two taxable income brackets of the personal income tax table. In addition to having a positive impact on Quebecers’ disposable income, the tax cut will also have repercussions on source deduction rates applied to certain payments and remuneration. The fixed rates used for provincial income tax source deductions on lump-sum payments have been changed. Employers will therefore have to adjust their calculations for such payments. This will be the case, for example, where sums are paid as retiring allowances, as is frequently the case in the settlement of certain employment termination agreements. Previously, the rate used to calculate provincial income tax source deductions on a retiring allowance payment was 15% for amounts up to $5,000, and 20% for payments over $5,000. The income tax deductions on such payments made after June 30, 2023, is now 14% for amounts up to $5,000, and 19% for payments over $5,000. Table of provincial and federal income tax source deduction rates for lump-sum payments, effective July 1, 2023, by amount of lump-sum payment (e.g. retiring allowance): $5,000 or less Provincial tax rate 14% Federal tax rate 5% Over $5,000 up to $15,000 Provincial tax rate 19% Federal tax rate 10% Over $15,000 Provincial tax rate 19% Federal tax rate 15% Although it may seem trivial, this review of provincial income tax source deduction rates has far-reaching implications, given that these are often used by parties especially in the negotiation of employment termination agreements. Human resources and payroll professionals must use the new income tax source deductions in their employment termination negotiations to ensure that they are tax compliant. A positive outcome of these rates is that employees will now have more disposable income after tax for the same amount paid by their employer. Such a measure could make reaching an agreement easier in the context of tough negotiations. As an employer, it is essential that you update your payroll systems and processes to correctly reflect the new income tax rates and ensure tax compliance. Our team of labour law and tax professionals is available to answer your questions about this change and help you make informed decisions that will benefit your business.
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.
On April 7, 2022, Finance Minister Chrystia Freeland tabled the federal government’s new budget for 2022. This budget includes several tax measures relevant to the mining industry in Canada. The Canadian federal government intends to provide $3.8 billion over eight years to implement Canada’s first critical minerals strategy. One of the methods used to implement this new strategy and stimulate exploration is an investment vehicle well known to the mining industry: flow-through shares. The 2022 budget proposes to create a new 30% Critical Mineral Exploration Tax Credit (CMETC) for certain specified minerals. Specified minerals that would be eligible for the new CMETC are: copper, nickel, lithium, cobalt, graphite, rare earth elements, scandium, titanium, gallium, vanadium, tellurium, magnesium, zinc, platinum group metals and uranium. As for the regular mineral exploration tax credit, the exploration expenses must have been incurred in Canada. The renunciation of expenses must also have been made under flow-through share agreements entered into after budget day and before March 31, 2027. It is important to note that there will be no cumulation of tax credits. Eligible expenditures will not be eligible for both the proposed new CMETC and the 15% regular mineral exploration tax credit (METC). In order for exploration expenses to qualify for the CMETC, a qualified person (as defined in National Instrument 43–101 issued by the Canadian Securities Administrators) will further have to certify that the expenses renounced will be incurred in the course of an exploration project for specified minerals. On this point, the measure seems to insert a new legal test of “reasonable expectation” that the minerals targeted by the exploration are “primarily specified minerals”. No details have yet been issued on the mechanics of applying this test. However, if the qualified person is unable to demonstrate that there is a reasonable expectation that the minerals targeted by the exploration project are predominantly specified minerals, the related exploration expenses would not be eligible for the CMETC and consequently, any credit granted for ineligible expenses would be recouped from the flow-through share holder who received the credit. Pending the tabling of a more detailed legislative version, careful attention and planning will therefore be required for new flow-through share financings to ensure that they meet the legal criteria for this new tax credit. Our team of professionals in securities, mining law and taxation is available to answer all your questions regarding this new measure and to assist you in the implementation of a successful flow-through financing: Josianne Beaudry René Branchaud Ali El Haskouri Charles-Hugo Gagné Éric Gélinas Sébastien Vézina
Following a qualification process, the Ministère des Transports et de la Mobilité durable du Québec (MTMD) issued a call for tenders in 2022 for the construction of the new Île-aux-Tourtes bridge pursuant to the project delivery method known as design-build-finance (DBF). Since this was a DBF, the financing of this project had to be included in the proposals made by the selected candidates. Lavery represented the successful consortium made up of Dragados Canada Inc., Roxboro Excavation Inc. and Construction Demathieu & Bard Inc. Our role required expertise in the following areas: (a) Governance and corporate law (b) Project financing (banking and securities) (c) Public procurement (d) Construction law (e) Commercial agreements (f) Taxation Lavery represented the consortium from the call for proposals to the financial close, including the drafting phase leading up to the awarding of the contract to the consortium. The financing was the most complex part of this transaction. Under the hybrid approach retained for that project, a major credit facility to be granted by a bank syndicate had to be set up, as well the private placement of two tranches of bonds. This involved adjusting the rights and obligations of creditors on both sides within a sophisticated intercreditor agreement. The financing also required parent company guarantees, including from French and Spanish corporations, which required us to find common ground to accommodate the typical requirements of a North American financing and the specific corporate and commercial features applicable in France and Spain. To meet this challenge, we put together a multidisciplinary team, divided up the work in accordance with our professionals’ diverse expertises, and dedicated a team member exclusively to interactions with the MTMD, its lawyers and the issuers of performance bonds typical for this kind of projects. Sound project management practices were essential to the success of this team effort. It is a privilege for Lavery to have participated in this essential project allowing the people of Quebec to obtain a new bridge linking the regions of Montérégie and Montréal. The Lavery team was led by Josianne Beaudry, Nicolas Gagnon, Édith Jacques, David Tournier and André Vautour, and included Véronik Bonneville-Pesant, Katerina Kostopoulos, Jean-François Maurice, Joseph Gualdieri, Siddhartha Borissov-Beausoleil, Alexandre Turcotte, Luc Pariseau, Charles Hugo Gagné, Mickaël Pageau, Jean-Vincent Prévost-Bérubé and Yohann Lévy.
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.
Lavery is pleased to announce that two lawyers are joining the firm, in the Montreal office. Charles-Hugo Gagné Charles-Hugo is a lawyer in the Business Law group and a member of the firm’s tax law team. In the course of his practice, Charles-Hugo participates in planning, analyzing and implementing tax structures and strategies as part of major commercial transactions, both in Canada and abroad. “Both local businesses and international companies turn to Lavery when they need solutions to their most complex issues. For a young lawyer, this translates into a remarkable diversity of mandates and makes it possible to work on major cases while staying grounded in the business reality of entrepreneurs. It is this plurality of exposure combined with the partners’ commitment to the advancement of their junior peers that convinced me to join Lavery. Such proximity to exceptional mentors fosters better transmission of knowledge, forges more competent lawyers and ultimately makes the firm stronger.” When I joined this team, which places great emphasis on competence and excellence but values collegiality and collaboration just as much, I immediately knew that I was in the right place and that I aspired to grow within Lavery. When starting a career, it’s important to surround yourself with accomplished professionals, but also with people who inspire you. That’s what I found at Lavery. Stephanie-Ann Morgan Stephanie-Ann is a member of the firm’s Business Law Group, and her practice focuses primarily on real estate, transactional and financing law. She represents owners, financial institutions, government entities, landlords and tenants in purchasing and selling, real estate financing and leasing transactions. “I was looking for a stimulating professional environment that values collaborative work and individual initiative. Working at Lavery Lawyers will be an opportunity to contribute to a large firm with a long-standing reputation in the legal industry and to be able to serve a diverse and prominent client base.”