[co-author: David Storey – Articling Student]
On March 28, 2024, the federal government announced the extension of the 15% Mineral Exploration Tax Credit (METC) for investors in flow-through shares for an additional year until March 31, 2025, amid market uncertainty. .1 The METC, previously scheduled to expire on March 31, 2024, provides companies in the capital-intensive mineral exploration industry with the benefit of tax credits associated with flow-through equity investments in mineral exploration. A credit designed to raise equity capital.2 This announcement is welcome news for many Canadian junior mineral exploration companies that rely on METC as a key source of financing.
Mineral exploration companies typically require large amounts of capital for projects that may not be profitable for a significant period of time. The flow-through share regime allows mineral exploration companies to “forfeit”, or transfer, to investors tax credits associated with certain exploration expenditures made on Canadian resource assets, thereby allowing private investment Houses are encouraged to fund early stage mineral exploration and support junior mineral exploration. Businesses raise money. The METC enhances tax benefits for flow-through equity investors and is a key component of flow-through equity financing, providing 65% of capital raised for mineral exploration within Canadian borders on the Canadian Securities Exchange. % and is driving significant funding. Exploration activities in Canada.3
The extension to the 15% METC does not affect the government's parallel 30% tax credit for exploration for “critical minerals” announced in the 2022 Budget and currently valid until March 31, 2027.
METC is a long-standing system that complements the flow-through share system for early-stage exploration and is the envy of the industry in other major international mining regions, such as Australia. The scheme was last renewed for a five-year period in 2019, at the time demonstrating the government's long-term commitment to the sector. While the newly announced extension is welcome, the short length of his one-year extension does not provide the same reassurance about the future of his incentives.
Canada's exploration and mining industry, one of Canada's major economic drivers, has benefited from the flow-through equity tax system introduced in the 1970s to encourage exploration investment in Canada. Mining stakeholders view the federal government's update of the METC as critical to fostering investment in mineral exploration in Canada, especially in the current market and geopolitical climate.
1 https://www.canada.ca/en/Department-finance/news/2024/03/government-extending-support-for-mineral-exploration-in-canada.html
2 https://natural-resources.canada.ca/our-natural-resources/minerals-mining/mining-policy-taxation-and-industry/taxation/mining-taxation-canada/mining-specified-tax-provisions/8892
3 https://www.pdac.ca/programs-and-advocacy/access-to-capital/flow-through-shares
