On March 28, 2024, the federal government announced, amid market uncertainty, that it would be extending the 15 percent Mineral Exploration Tax Credit (METC) for investors in flow-through shares for one additional year, until March 31, 2025.1 The METC, which was previously set to expire on March 31, 2024, is a credit designed to help companies in the capital-intensive mineral exploration industry raise equity funds by supplementing the tax deduction benefits associated with flow-through share investments in mineral exploration.2 The announcement comes as welcome news to many Canadian junior mineral exploration companies who rely on the METC as an important means of raising capital.
Mineral exploration companies require a significant amount of capital for projects that typically do not return profits for considerable periods of time. The flow-through share regime permits mineral exploration companies to "renounce", or transfer, to investors the tax deductions associated with certain exploration expenditures conducted on Canadian resource properties, thereby incentivizing individual investors to finance early-stage mineral exploration and helping junior mineral exploration companies raise capital. The METC, which boosts the tax benefits to flow-through share investors, has become a key component of flow-through share financings, which account for over 65 percent of the funds raised on Canadian stock exchanges for mineral exploration within Canadian borders and drive important exploration activity in Canada.3
The extension to the 15 percent METC does not affect the Government's parallel 30 percent tax credit in respect of exploration for "critical minerals", which was announced in the 2022 Budget and is currently in effect until March 31, 2027.
The METC is a long-running supplement to the flow-through share regime for early-stage exploration and is the envy of the industry in other major international mining regions, such as Australia. It was last renewed in 2019 for a five-year term, signaling the Government's long-term commitment to the sector at that time. While the newly announced extension is welcome, the shorter one-year horizon of the extension does not provide the same comfort regarding the future of the incentive.
The exploration and mining industry in Canada—one of Canada's leading economic drivers—has benefited from the flow-through share tax regime, which was implemented in the 1970s to promote exploration investment in Canada. Mining industry participants view the federal government's renewal of the METC as crucial to incentivizing mineral exploration investment in Canada, particularly in current market and geopolitical conditions.
Footnotes
3. https://www.pdac.ca/programs-and-advocacy/access-to-capital/flow-through-shares
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