Seize the Moment: Unlocking Over $1 Billion in Accretive Exploration & Mining Investment Through Smart Tax Reform
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PearTree Canada’s Government Submissions
For over a decade PearTree has advocated for evidence based tax incentives in support of the resource sector, including promoting the expansion of the uniquely Canadian flow-through share tax regime to enhance critical minerals opportunities, as is now adopted.
Our team monitors legislative changes, engages in policy consultations, and provides informed perspectives on how tax and regulatory frameworks impact issuers, donors, and the broader mining sector. Through ongoing dialogue with government stakeholders, we advocate for policies that promote economic development in rural and remote communities.
4 Recommendations
- Stop unnecessary requests for information (RFI) practice
- Clarifying CEE eligibility – the Seabridge decision fixing Canada’s “Valley of Death”
- Expand & simplify the Canadian Development Expenses (CDE) definition
- Alternative Minimum Tax (AMT) reducing exploration by billions of dollars annually
7 Recommendations:
- Alternative Minimum Tax (AMT) – For AMT purposes only, eliminate (1) the 100% of the capital gain add-back; AND (2) the Canadian Exploration Expense deduction add-back resulting in an accretive $350M annually in exploration financing.
- CRA Requests for Information it Already Possesses – Stop the CRA’s practice of requesting redundant information as a condition of issuing tax refunds, resulting in over $200M of lost exploration investment annually, while costing the federal treasury tens of millions of dollars in interest and human resources.
- Provide Clarity on the Definition of Canadian Exploration Expense (CEE) – Publish a statement confirming CRA agrees with the Supreme Court of BC’s interpretation of the FTS regime i.e. that expenditures up to the decision to develop a mine fall within the CEE definition adding an accretive $500M annually in exploration and development financing.
- Expand the Canadian Development Expense (CDE) Definition – Once a decision is made to develop a mine, all expenditures, including capital equipment, should qualify as CDE. Additionally, FTS funded development expenditures should be deductible by the FTS subscriber over two years at 50% annually, replacing the current 37.5% declining balance.
- Expand Flow-Through & Critical Mineral Exploration Tax Credit (CMETC) Eligibility – Make all 34 minerals on Canada’s Critical Minerals List CMETC-eligible by amending ITA section 248(a) to define ‘mineral resource’ as ‘a base or precious metal, or a critical mineral as defined by Natural Resources Canada”.
- Mineral Exploration Tax Credit (METC) and CMETC – Make METC and CMETC permanent.
- Set Price Floors to Provide Certainty – Implement a government-backed price support mechanism, like a contract for difference (CFD), to guarantee minimum revenue for critical mineral producers, mitigating market manipulation risk.
4 Recommendations:
1. Modify the Alternative Minimum Tax (“AMT”) schedule to reduce the negative economic impact on the mineral exploration industry by:
a) Eliminating the phantom capital gain in line 1 of the AMT Schedule; and
b) Reducing the add back of Canadian Exploration Expenses (“CEE”) as funded through the Flow-Through Share (“FTS”) structure to 30%.
2. Renew the Mineral Exploration Tax Credit (“METC”) for 5 years beyond March 2025, and extend the Critical Mineral Exploration Tax Credit (“CMETC”) by 3 years, from 2027, thereby aligning the two incentives to expire March 2030.
3. Make all 34 minerals on Canada’s Critical Minerals List eligible for the CMETC and update section 248(a), the definition of “mineral resource”, in the Income Tax Act (Canada) (“ITA”) to read: “a base or precious metal or a critical mineral”.
4. Provide authority to the Minister of Natural Resources to allow an extension of expenditure timelines associated with FTS in the event of unforeseen situations (e.g. wildfires, floods, etc.) that create significant liabilities for resource companies and their FTS investors.
7 Recommendations:
1. Expand the definition in the Income Tax Act to make the Clean Investment Tax Credits and all 31 minerals on Canada’s Critical Minerals List eligible for financing under the Flow-Through Share (“FTS”) tax regime with a priority placed on helium.
2. Renew the Mineral Exploration Tax Credit for 5 years beyond the current expiry date of March 2024, and extend the Critical Mineral Exploration Tax Credit by 2 years, from 2027, thereby aligning the periods for the two incentives.
3. Provide authority to the Minister of Natural Resources to allow for an extension of expenditure timelines associated with FTS in the event of an unforeseen situation (e.g. wildfires) that may create unintended tax consequences for companies and individuals.
4. Postpone implementation of the proposed changes to the Alternative Minimum Tax (“AMT”) to be effective January 1, 2025 to allow for continued consultation and refinement in order to avoid foreseeable and potentially catastrophic impacts on the resource and charity sectors.
5. Modify the proposed changes to the AMT in Budget 2023 to reduce or eliminate the unintended negative economic impact on the successful Mineral Exploration Tax Credits by:
a) Removing the Donation Tax Credits from the AMT calculation
b) Retaining the 0% inclusion rate for capital gains on donations of publicly listed securities in the calculation of AMT
c) While preserving the regular capital gains treatment for FTS based on a deemed nil adjusted cost base, for the purpose of AMT only, the capital gain calculation should be based on the subscription price paid for the FTS and not nil.
6. Clarify the language in proposed subsection 245 (4.1) of the ITA surrounding the GAAR to ensure tax incentives supporting high risk investment in the FTS regime are not inadvertently eliminated resulting in negative economic impacts on the exploration sector by adding a postamble stating: “but does not include a transaction or series entered into for the purpose of issuing a flow-through share for which an information return has been filed with the Minister under subsection 66(12.68).”
7. Amend the ITA Regulation s.6201.1(5)(c) definition of ‘excluded obligation’ to increase resource issuer tax compliance. These provisions should apply to all FTS offerings.
a) Issuers’ obligations under the standard FTS tax indemnities contained in subscription agreements should include interest charged by the CRA to FTS subscribers.
b) The indemnity obligation should be a first charge against the assets of the issuer in priority to banks but always subordinate to government claims.
2 Recommendations:
- Modify the changes to the Alternative Minimum Tax (AMT) in Budget 2023 so as not to reduce or eliminate the economic benefits resulting from the newly enacted Critical Mineral Exploration Tax Credit in Budget 2022.
- Clarify the language surrounding newly released GAAR pronouncements ensuring that the tax incentives promoting high risk investment in resource exploration through the Flow-Through Share regime are not inadvertently eliminated resulting in catastrophic economic impacts on the resource sector.
2 recommandations :
Modifier les changements apportés à l’impôt minimum de remplacement (IMR) dans le Budget 2023 afin de ne pas réduire ou éliminer les avantages économiques découlant du nouveau crédit d’impôt pour l’exploration de minéraux critiques instauré dans le Budget 2022.
Clarifier le libellé entourant les nouvelles annonces concernant la RGAÉ (Règle générale anti-évitement) afin de s’assurer que les mesures fiscales visant à encourager l’investissement à haut risque dans l’exploration des ressources, par l’entremise du régime d’actions accréditives, ne soient pas éliminées par inadvertance, ce qui entraînerait des répercussions économiques catastrophiques pour le secteur des ressources.
3 Recommendations:
- Amend the AMT calculation such that that the capital gain calculated on a FTS from a deemed nil cost up to the purchase price, not be included in the AMT calculation.
- Eliminate of the proposed capital gains tax on donated gifts of securities, and allow donors to use the full donation tax credit when calculating AMT.
- That a post amble be added to the interpretive rules in proposed subsection 245(4.1) ITA to include the following: “but does not include a transaction or series entered into for the purpose of issuing a flow-through share for which an information return has been filed with the Minister under subsection 66(12.68).”
7 Recommendations:
- All 31 Critical Minerals, per the Natural Resource Canada (“NRCAN”) list, should be eligible for the Critical Mineral Exploration Tax Credit (the “CMETC”);
- Critical minerals including lithium found in “bedded deposits” should be flow-through share eligible;
- Increase the Mineral Exploration Tax Credit (the “METC”) from 15% to 30% and the CMETC from 30% to 50% in Yukon, Northwest Territories, and Nunavut;
- Expand eligible Canadian Exploration Expenses (the “CEE”) to include expenses related to advanced exploration.
- Amend the ITA Regulation s.6201.1(5)(c) to Increase Resource Issuer Tax Compliance.
- <Equalize the impact of Alternative Minimum Tax (AMT) with respect to investments in flow-through shares which are subject to the new CMETC to mirror that of the existing METC.
- Reduce the capital gains inclusion rate on investments in flow-through shares from 50% to 25%.
5 recommendations:
- All 31 Critical Minerals, per the Natural Resource Canada (“NRCAN”) list, should be eligible for the Critical Mineral Exploration Tax Credit (the “CMETC”);
- Critical minerals found in “bedded deposits” should be flow-through share eligible;
- Increase the Mineral Exploration Tax Credit (the “METC”) from 15% to 30% and the CMETC from 30% to 50% in Yukon, Northwest Territories, and Nunavut;
- Expand eligible Canadian Exploration Expenses (the “CEE”) to include expenses related to advanced exploration.
- Amend the ITA Regulation s.6201.1(5)(c) to Increase Resource Issuer Tax Compliance.
5 recommendations:
- Qualified Person (QP) prescribed manner and form of certificate (the “QP Certificate”) – transitional provision for 2022 CMETC financings completed prior to the publication of the prescribed form as set out in ITA s.66(12.61) (e);
- Absent fraud or gross negligence proven by the CRA, the QP Certificate certifying that the “expense will be incurred pursuant to an exploration plan that primarily targets critical minerals” as set out in ITA s.66(12.61) (e) is uncontestable by the CRA;
- If recommendation 2 above is not accepted, then reformatting the CMETC as a subset of the broader METC;
- Increasing resource issuer tax compliance by amending the ITA Regulation s.6201.1(5)(c) definition of ‘excluded obligations’ so that issuers’ obligations under the standard flow-through share tax indemnity contained in subscription agreements include (1) interest charged by the CRA to flow-through share subscribers and (2) that the indemnity obligation is a first charge against the assets of the issuer in priority to banks but always subordinate to government claims. This provision would apply to all flow-through offerings, not just those that otherwise quality for the CMETC.
- Allow for the 3 Year Carryback of the CMETC
