About two years ago I joined PearTree after spending the previous 4 years as the CEO of the AME, and the 2 years prior as President of a BC/Yukon gold explorer. Working directly in industry you experience how difficult it is to raise funds. However, my time with PearTree has highlighted how lucky Canadians are to have the flow through share program, and the additional tax incentives supported by various provinces. After twenty years as a geologist and champion of the exploration industry (specifically in BC), I was pleased to see the Supreme Court of British Columbia release its decision on March 26th in Seabridge Gold Inc. v. British Columbia, 2025 BCSC 558, in Seabridge’s favour. It is a significant legal win for Seabridge, the BC exploration community and hopefully the exploration community across the country.
Seabridge successfully challenged the Canadian Revenue Agency (CRA) decision to disallow certain mineral exploration expenditures under the BC Income Tax Act. The decision hinged on the definition of “qualified mining exploration expenses” (QMEE) under the BC Mining Exploration Tax Credit (METC) program and specifically if expenditures met the purpose test. Otherwise stated, were expenses “incurred for the purpose of determining the existence, location, extent or quality of a mineral resource in BC”?
The Judge concluded that “expenses that assist in the determination of the economic viability of a mineral resource are captured under the ‘quality’ term of the purpose test”.
For years, the mineral exploration community has recommended to government that the purpose test for Canadian Exploration Expenses (CEE), which is the same as the purpose test for QMEE, be interpreted to include economic viability as part of the ‘quality’ term. Economic viability is continuously assessed, in increasing degrees of rigour, at every phase of the exploration journey of a project and ultimately when making a construction decision. Project economics need to be well understood to comfortably and feasibly advance a project through development.
Although the Seabridge decision is specific to the BC METC program it provides a basis for CRA to follow the same logic when assessing expenditures under the BC Flow Through Share Tax Credit program, other provincial flow-through share tax credit programs and the federal Mineral Exploration Tax Credit Program (METC), all of which require expenditures to meet the definition of Canadian Exploration Expenses (CEE) and the same purpose test: expenses are incurred for the purpose of determining the existence, location, extent or quality of a mineral resource. The PearTree team continues to watch this case closely to see whether the decision will be appealed or if CRA will implement the court’s interpretation. We expect we will know CRA’s position soon, as 93 of PearTree’s clients funded another Seabridge exploration program that received reassessment notices after CRA rejected expenditures Seabridge incurred to determine the economic viability of one of its projects. We’ll soon see if the CRA issues tax refunds after the appeal period.
Highlights of the Decision:
- “Expenses that assist in the determination of the economic viability of a mineral resource are captured under the ‘quality’ term of the purpose test”
- Most disallowed expenses were found to be valid Qualified Mining Exploration Expenses (QMEEs) under the BC Income Tax Act, including those incurred to assess the economic viability of a mineral resource. Some examples of allowable expenses included mine plans and engineering, engineering relating to water, mine waste and tailings, metallurgical testing and geotechnical investigations.
Key Legal Clarifications – three important takeaways:
- The term “quality” includes a wide range of economic and operational factors necessary to assess economic viability —such as capital and operational costs, mineral grade, and environmental risks.
- The Court found no legal gap between the tax regimes relating to exploration and to development. The two regimes are not divided by the time of incurring the expenditure but by the purpose for which the expenditure is incurred. Therefore CEE can be incurred even after development begins, provided the expenditure meets the purpose test of further understanding the mineral resource.
Implications for the Mineral Exploration Sector:
- Clearer eligibility of a broader group of expenditures qualifying for tax credits and incentives under the BC METC
- Enhanced investor confidence in BC’s regulatory environment
- A well reasoned Superior Court precedent providing a clear and strong position for industry to advocate for similar clarity related to the ‘quality’ term under the definition of CEE.
On behalf of industry, I’d like to thank Seabridge for pursuing this case. On behalf of PearTree and its subscribers, we would like to express our appreciation and thanks to Rudi Fronk CEO, Chris Reynolds CFO and Bruce Scott SVP, General Counsel for the herculean effort in doing everything right in funding the subscriber tax indemnities in a years long process that now hopefully sees our clients refunded and in turn their payment back to Seabridge. It is a difficult decision to proceed with a case like this when you are in the exploration phase of a project. However, this ruling provides much-needed clarity for industry and reinforces British Columbia’s position as a stable and attractive jurisdiction for mineral exploration and development. We are hopeful that CRA will follow suit on the interpretation in this case and extend the decision to the definition of CEE.
If you’d like to discuss the implications for your projects, please reach out.
