2025 Federal Budget: Select Tax Measures Of Interest To Mining Companies

Introduction

The Canadian Federal Budget (Budget 2025),¹ released on November 4, 2025, contained several proposals of interest to companies that explore for minerals in Canada. Specifically, several of these proposals directly relate to shares issued as "flow-through shares" pursuant to the Income Tax Act (Canada) (the Tax Act).

Flow-through shares allow certain corporations that explore for minerals in Canada to renounce or "flow-through" "Canadian exploration expenses" (CEE) to the initial subscribers for such shares. CEE may include expenses incurred by a taxpayer for the purpose of determining the existence, location, extent, or quality of a mineral resource in Canada. Subscribers may deduct CEE by calculating their own taxable income at a rate of 100 per cent. Further, individual subscribers (other than trusts) who invest in flow-through shares may be able to claim the Mineral Exploration Tax Credit (METC) or the Critical Mineral Exploration Tax Credit (CMETC) in respect of certain types of CEE.

Expansion of the Critical Mineral Exploration Tax Credit

The CMETC provides an additional income tax benefit for subscribers who invest in eligible flow-through shares. The CMETC is equal to 30 per cent of specified mineral exploration expenses incurred in Canada primarily targeting "critical minerals" and renounced to subscribers. The following critical minerals are currently eligible for the CMETC:

Budget 2025 proposes to expand the eligibility of the CMETC to include the following additional critical minerals:

Expenditures on the additional critical minerals will be eligible for the CMETC with respect to flow-through share agreements entered into after November 4, 2025, and on or before March 31, 2027.

Confirmation of Extension of the Mineral Exploration Tax Credit

Similar to the CMETC, the METC provides an additional income tax benefit for subscribers who invest in eligible flow-through shares. The METC is equal to 15 per cent of specified mineral exploration expenses incurred in Canada to determine the existence, location, extent, or qualify of a "mineral resource" (gold, silver, etc.) and renounced to subscribers. The CMETC and the METC are mutually exclusive. A subscriber may only get the benefit of one of the credits.

The METC expired on March 31, 2025. On March 3, 2025, the Minister of Energy and Natural Resources announced that the METC would be extended for an additional two years until March 31, 2027, but, since this announcement, a new government was elected. Budget 2025 confirms the current government intends to proceed with the extension of the METC, as previously announced.

Clarification of activities that qualify as Canadian Exploration Expense

The determination of a mineral resource's "quality" for CEE purposes has historically been interpreted by the Canada Revenue Agency (the CRA) to relate to the resource's underlying physical characteristics. Expenses for technical studies (which are typically undertaken to assess a mineral resource's engineering feasibility and economic viability as a mining project, rather than its underlying physical characteristics) have generally been viewed by the CRA as being excluded from CEE.

A recent court decision of the Supreme Court of British Columbia held that the reference to

"quality" under the provincial equivalent of the federal CEE definition could be interpreted to include the economic viability, and not just the physical characteristics, of a mineral resource.

Budget 2025 purposes to amend the Tax Act to clarify expenses incurred for the purposes of determining the quality of a mineral resource in Canada do not include expenses related to determining the economic viability or engineering feasibility of a mineral resource.

This amendment will apply as of November 4, 2025.

Critical Minerals Sovereign Fund & First and Last Mile Fund

In addition to the proposals related to flow-through shares discussed above, Budget 2025 announced funding to Natural Resources Canada to create the Critical Minerals Sovereign Fund and the First and Last Mile Fund.

The Critical Minerals Sovereign Fund will make strategic investments in critical minerals projects and companies.

The First and Last Mile Fund will support the development of Canada's critical minerals projects and supply chains at the upstream and midstream segments of value chains, with a focus on getting near-term projects into production.

Footnote

1 Government of Canada, Budget 2025 (Ottawa: Department of Finance Canada, 2025), online [Budget 2025].

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