Alternative Minimum Tax Hits Charities and Natural Resource Exploration Financing – on The Globe and Mail

First published in the Globe and Mail on December 15, 2025

The federal government’s latest budget delivered quiet but significant blows to Canadian investment, philanthropy and critical mineral exploration financing.
In 2024, the capital gains inclusion rate was increased to two-thirds, and then walked back to 50 per cent as part of the pre-election Liberal platform. The Alternative Minimum Tax (AMT) rules, designed to ensure that taxpayers pay a minimum amount of tax, were amended to mirror the increased inclusion rate.

Unfortunately, the AMT changes were not rolled back pre-election or in this current budget. The current tax paid on capital gains under AMT is the equivalent of an inclusion rate of 58 per cent in BC and Ontario and 66 per cent in Quebec. Every province is above the 50 per cent rate. AMT adds back into income tax deductions including a percentage of donation receipts, the free half of capital gains, child care expenses and financing costs. The list is pretty long. The results are not intuitive until you run a tax return.

For a simple example run a tax return based on a $2-million capital gain by an Ontario taxpayer with no other income. The tax is calculated on a $1-million. The tax before AMT is about $493,000. AMT adds about $97,000 bringing the total tax bill to $590,000. In Quebec it’s $659,000. A $200,000 cash donation sees AMT increase from $97,000 to almost $115,000.

AMT is characterized as a timing issue since it’s a credit that carries forward seven years then lost. Unfortunately, the charity community knows that major, often transformational, gifts frequently result from a once-in-a-lifetime windfall such as a sale of property or business. AMT paid on that one event is rarely absorbed in the following seven years. For the philanthropic sector, which relies heavily on large gifts – more than 40 per cent of which come from the top 2 per cent of income earners – the constraint is immediate and chilling.

AMT is even more damaging to Canada’s resource sector where fewer than 3,000 Canadian taxpayers, all limited by AMT, fund about 90 per cent of all resource exploration in Canada under the flow-through share (FTS) tax regime. The 2024 AMT changes resulted in more than $400-million of lost early-stage investment capital in 2025.

A flow-through share is simply a newly issued common share in which the exploration company agrees to spend the funds on a list of exploration activities set out in the Income Tax Act, largely labour in northern, remote and Indigenous communities. As the name indicates, the resource company ‘flows through’ the payroll and other Canadian Exploration Expenses (CEE) to the subscriber/investor funding the new activity.

For tax purposes, a FTS bought for one dollar results in a tax deduction of a dollar but reduces the cost base of the FTS to nil. Most all FTS are sold at a price less than the issue price. It’s common to see a share issued for one dollar sold for 65 cents. Even though there is an economic loss, the entire 65 cents is a capital gain all of which is added to AMT – not just half. Moreover, the CEE deduction of one dollar is all added back into income under the AMT rules.

“AMT is even more damaging to Canada’s resource sector where fewer than 3,000 Canadian taxpayers, all limited by AMT, fund about 90 per cent of all resource exploration in Canada under the flow-through share (FTS) tax regime. The 2024 AMT changes resulted in more than $400-million of lost early-stage investment capital in 2025.”

In 2024, PearTree successfully lobbied Finance Canada resulting in draft legislation eliminating the CEE add back. That legislation was shelved when Parliament was prorogued, and the legislation was specifically excluded in the budget. Had it passed, the legislation would have added another $400-million annually in exploration capital.

The resource exploration sector is chronically short of investment capital. In addressing this key capital constraint the Liberal government’s “Canada Strong” platform promised to “Attract, expand, and derisk investments in critical minerals exploration and extraction through the expansion of existing tax credits….(by) Expanding eligible activities under Canadian exploration expenses to include the costs of technical studies, such as engineering, economic and feasibility studies for critical minerals projects.”

In a legal dispute between Seabridge Gold and the Canada Revenue Agency (CRA) resolved in March 2025, the BC Supreme Court ruled in the company’s favour when it determined that the definition of Canadian Exploration Expenses includes the eligible activities specifically set out in the Liberal platform. Natural Resources Canada estimates that accepting the Seabridge decision would add some $500-million annually to exploration capital. Yet the Seabridge decision was targeted and reversed in the subsequent federal budget. No one seems to get it.

Finance Canada says Canada can’t afford tax leakage by way of tax incentives. In fact, the flow-through share regime costs the treasury less than half of direct government investment.
Minister of Energy and Natural Resources Tim Hodgson recently said that in order to meet national goals Canada needs $8-billion of annual resource exploration. Adjusting AMT – including backing out CEE and capital gains for AMT purposes only – and adopting the Seabridge decision would add well over $1.5-billion of instantly available private Canadian equity. And of course, another $1.5-billion of shares available for donation in support of hospitals, food banks, public housing and much more.

The Globe’s editorial department was not involved in the production of this article.