On March 1, 2015, the Canadian Government announced that it
would broaden the definition of Canadian exploration expenses and
extend the availability of the mineral exploration tax credit.
These changes are intended to support companies engaging in mineral
exploration in Canada, and are most relevant to companies that
issue flow-through shares and to their shareholders. Flow-through
shares issued by a resource company allow the company to renounce
or "flow through" to its shareholders certain expenses
associated with the company's Canadian exploration
Canadian Exploration Expense
Canadian exploration expenses consist of certain types of
expenses incurred in exploration in Canada, including certain
expenses incurred in determining the existence, location, extent or
quality of oil and gas reserves and mineral resources. Canadian
exploration expenses are fully deductible by a resource company,
and can be flowed through to certain of its shareholders.
companies are often required to conduct environmental studies and
engage in consultations with communities and other interested
parties. These studies and consultations may be required to secure
licenses and permits necessary to engage in exploration. In the
past, expenses associated with these studies and consultations have
not always been eligible for the beneficial treatment afforded to
Canadian exploration expenses.
The Canadian Government plans to
take steps to ensure that the costs of these environmental studies
and community consultations will be eligible for Canadian
exploration expense treatment. This generally will permit these
costs to be fully deductible and eligible for flow-through
Mineral Exploration Tax Credit
In addition to deducting Canadian exploration expenses,
individuals who invest in flow-through shares are entitled to a 15%
tax credit for certain specified exploration expenses called
"flow-through mining expenditures" renounced to them.
Flowthrough mining expenditures generally consist of exploration
expenses incurred in the course of determining the existence,
location, extent or quality of a mineral resource in Canada. This
tax credit was originally introduced in the 2000 federal budget as
a temporary measure to encourage and support access to capital for
The availability of the mineral exploration tax credit, which
was set to expire on March 31, 2015, will now be extended by the
Canadian Government to flowthrough share agreements entered into
before April 1, 2016.
It is expected that enhancing and extending the tax advantages
associated with Canadian exploration expenses and the mineral
exploration tax credit will increase the desirability of
flow-through shares in the hands of certain investors, potentially
easing the ability of resource companies (particularly junior
companies) to raise capital.
The content of this article does not constitute legal advice
and should not be relied on in that way. Specific advice should be
sought about your specific circumstances.
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Canada is a constitutional monarchy, a parliamentary democracy and a federation comprised of ten provinces and three territories. Canada's judiciary is independent of the legislative and executive branches of Government.
The Government of Alberta recently announced a number of policy changes that will impact the Alberta Electricity Market, composed of its generators, transmitters, distributors, retailers, electricity consumers and wholesale electricity market.
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