On December 15, 2022, Bill C-32, providing for the new non-refundable “30% Critical Mineral Exploration Tax Credit” (30% CMETC) proposed by the Government of Canada in the 2022 Budget , received Royal Assent. The 30% CMETC was the subject of a recent insight published by the Dentons Mining Law Canada Blog. Since then, there have been developments with respect to the 30% CMETC.
- Qualified professional and 12-month period
The original draft income tax legislation to implement the 30% CMETC released by the Department of Finance of Canada on August 9, 2022, provided that a “qualified engineer or geoscientist” must certify that the qualifying resource exploration expenditures will be incurred pursuant to an exploration plan that primarily targets critical minerals. This means that the exploration activities must target mineral deposits containing primarily (more than 50%) critical minerals. The terms “qualified engineer or geoscientist” were subsequently modified to “qualified professional engineer or professional geoscientist.” Finance Canada published explanatory notes with respect to the wording change, which is “to protect both individual taxpayers (who may invest in flow-through shares on the understanding that their investment will be eligible for the CMETC) and the integrity of the Canadian income tax system.” The 30% CMETC tax legislation was sanctioned with the new proposed wording.
In addition, the sanctioned legislation includes a wording change from what was initially provided for in the proposed legislation. The proposed legislation required the “qualified engineer or geoscientist” to complete the certification “no more than 12 months before the time that the agreement is made.” The sanctioned legislation provides that the “qualified professional engineer or professional geoscientist” must complete the certification “within the 12-month period immediately preceding the time when the [flow-through shares (FTSs)] agreement is made.” Contrary to the proposed legislation that could lead the taxpayer to believe that the certification could be obtained after the agreement is made, the wording of the sanctioned legislation is clear as to the window to obtain the certification.
2. Prescribed form
According to the sanctioned legislation, the certification to be completed by the “qualified professional engineer or professional geoscientist” must be “in the prescribed form.” Said form is T100A-CERT and was released by the Canada Revenue Agency (CRA) on December 12, 2022. Form T100A-CERT has to be filed as an attachment to form T100A. The information to be provided by the “qualified professional engineer or professional geoscientist” when completing form T100A-CERT reflects, in essence, the guidance previously issued by the CRA on October 5, 2022.
3. “Mineral resource”
One aspect of the 30% CMETC that remains to be clarified is how the definition of “mineral resource” in the Income Tax Act (Canada) (ITA) ties into the CMETC regime. Guidance is required for the following reasons:
i. In order for an expense to be renounced to FTS investors, thereby entitling them to deduct said expense and claim the 30% CMETC, the expense must first and foremost qualify as a Canadian exploration expense (CEE), within the meaning assigned pursuant to paragraph 66.1(6)(f) of the ITA, which requires that the expense be incurred for the purpose of determining the existence, location, extent or quality of a “mineral resource” in Canada. Bill C-32 did not modify the definition of CEE to include the notion of “critical minerals”.
ii. Furthermore, in order for a FTS investor to be eligible to the 30% CMETC, an eligible issuer corporation must incur expenditures that qualify as “flow-through critical mineral mining expenditure” (FTCMME) defined in subsection 127(9) of the ITA. For an expense to qualify as FTCMME, it must first and foremost qualify as a CEE.
“Mineral resource” is defined in subsection 248(1) of the ITA.
An exploration activity that targets a “critical mineral” does not automatically target a “mineral resource.” Unless a “critical mineral” (i) can be considered as a base or precious metal deposit pursuant to paragraph (a) of the definition of “mineral resource” in subsection 248(1) of the ITA or (ii) is specifically listed in subparagraphs (d)(ii) or (iii) of said definition (e.g., a mineral deposit in respect of which the principal mineral extracted is gemstone or diamond), the taxpayer will have to request that the Minister of Natural Resources certifies that the principal mineral extracted from the concerned mineral deposit is an industrial mineral contained in a non-bedded deposit.
It appears that the position taken by the CRA to date in regard to certain “critical minerals” is that they are not considered as “mineral resources” unless they meet the requirements of the definition of “mineral resource” under subsection 248(1) of the ITA. In this regards, it appears that certain critical minerals, such as lithium and rare earth elements, are generally not considered as base or precious metal deposits. Given that they are not otherwise listed in subparagraphs (d)(ii) or (iii) of the definition of “mineral resource” in subsection 248(1) of the ITA, the taxpayer will have to request that the Minister of Natural Resources certifies that the principal (critical) mineral extracted from the concerned mineral deposit is an industrial mineral contained in a non-bedded deposit
Unless the legislator amends the ITA (e.g., deeming a “critical mineral” to be a “mineral resource”), mining exploration companies must exercise caution in regards to their critical mineral exploration projects.
4. Exploration activity “primarily targeting critical minerals:” Expectations versus reality
Mining exploration companies may be concerned as to whether a mining exploration project will qualify for the 30% CMETC if, (i) contrary to what was initially expected, the mineral deposit does not primarily contain critical minerals, or (ii) the CRA takes the position that a given project does not meet the 30% CMETC criteria.
The concern is valid, notably because under the new legislation introducing the 30% CMETC, mineral exploration companies are expected to anticipate that a mineral deposit being explored will primarily contain critical minerals, which, as the exploration work progresses, may end up not being the case. In addition, CRA can be unpredictable in reassessing a taxpayer.
For an expenditure to be eligible for the 30% CMETC, the expenditure must be incurred in conducting mining exploration activity primarily targeting critical minerals. From a practical perspective, a mineral exploration company can hardly know if a deposit primarily contains critical minerals at the time the FTS Agreement is made.
However, for a certification to be completed by the “qualified professional engineer or professional geoscientist,” which is a prerequisite for an expenditure to be eligible for the 30% CMETC, some research must be conducted allowing them to expect that the deposit will primarily contain critical minerals. According to our reading of the technical notes, it appears that as long as the certification is obtained based on proper evidence that the mineral deposit being explored is expected to primarily contain critical minerals, then the FTS investors should be eligible for the 30% CMETC (as long as all other requirements are met).
In that regard:
i. New form T100A-CERT provides for a section entitled “Explanation of Expectation of Occurrence of Targeted critical minerals – Provide a brief explanation of why it is expected that the mineral deposit(s) being explored will contain primarily (i.e., more than 50%) critical minerals.”
ii. Subparagraph (ii) of the definition of FTCMME in paragraph 127(9)(e) of the ITAalso provides that the “qualified professional engineer or professional geoscientist” must act reasonably, in their professional capacity, in completing the certification.
iii. In addition, the definition of “qualified professional engineer or professional geoscientist” in subsection 127(9) of the ITA stipulates that said professional must have at least a minimum level of credentials with respect to education, experience in the mineral field and experience relevant to the subject matter of the exploration plan.
iv. Furthermore, new form T100A-CERT requires the mining exploration company to keep in its records, and make available to the CRA upon request, supporting documents to the completed certification (including a description of the geological features of the property(ies)). A mining exploration company cannot simply “guess” that a mineral deposit will primarily contain critical minerals. It must collect and keep in its records evidence to support its position.
v. As noted above, the explanatory notes associated with the draft legislation issued on August 9, 2022, indicate that this certification condition is intended to protect the individual taxpayers and the integrity of the Canadian income tax system.
vi. All of the above demonstrates that the CRA gives a certain degree of deference to the opinion of the qualified professional.
vii. In addition, according to the definition of FTCMME in subsection 127(9) of the ITA, an exploration activity has to primarily target critical minerals, which implies a certain degree of uncertainty. The condition is not that the exploration activity is conducted in regards to a mineral deposit that primarily contains critical minerals. It would be improper for the CRA to reassess a taxpayer if it finds that the mineral deposit did not primarily contain critical minerals after the FTSs are issued. Rather, the CRA should examine whether, in light of the certification of the “qualified professional engineer or professional geoscientist,” the mineral deposit was reasonably be expected to primarily contain critical minerals.
If, however, as the exploration work progresses, the mining exploration company realizes that a given mineral deposit being explored does not primarily contain critical minerals anymore (e.g., if a non-critical mineral such as gold is found out to be the prominent mineral of the deposit), then the 30% CMETC would not be available anymore in regard to FTSs issuedthereafter. This interpretation is based on the text of the new legislation and on the technical notes issued by the Department of Finance with respect to the draft legislation.
It is very important to keep an eye out for any change in the primary component of a given mineral deposit, especially because taxpayers cannot claim the existing 15% federal mineral exploration income tax credit (for non-critical minerals) as a “fallback” option. In other words, if an investor claims the new 30% CMETC and the claim is subsequently denied by CRA, the investor cannot then claim the existing 15% federal mineral exploration tax credit.
 Bill C-32 – An Act to implement certain provisions of the fall economic statement tabled in Parliament on November 3, 2022 and certain provisions of the budget tabled in Parliament on April 7, 2022.
 Budget 2022 – A Plan to Grow Our Economy and Make Life More Affordable (Federal Budget), released by the Department of Finance of Canada on April 7, 2022.
 Department of Finance of Canada, Explanatory Notes to the Legislative Proposals Relating to the Income Tax Act and Regulations (Budget 2022 and Other Proposals), August 9, 2022.
 T100A-CERT Certificate of Qualified Engineer or Geoscientist issued by Canada Revenue Agency.
 T100A, Flow-Through Share Information – Application for a Selling Instrument T100, Identification Number (SITIN) issued by Canada Revenue Agency. This form is required to be filed in connection with a FTSs financing.
 As of October 5, 2022, form T100A-CERT was not yet released, despite the fact that eligible issuer corporations have been able to enter into FTSs agreements targeting critical minerals since April 7, 2022. In its October 2022 guidance, CRA indicated that, with respect to 30% CMETC certifications made in advance of the prescribed form being released, it would accept a letter signed by the “qualified engineer or geoscientist” that includes information such as the targeted critical mineral(s) and a brief explanation of why it is expected that the mineral deposit(s) being explored will primarily contain (i.e., more than 50%) critical minerals. Form T100A-CERT reflects in essence the information requested by the CRA guidance.
 An Act Respecting Income Taxes, Revised Statutes of Canada 1985, c. 1 (5th Supplement), as amended.
 As it is uncertain whether the mineral deposit will effectively primarily contain critical minerals. It may be expected to be, according to evidence such as the geological features of a given property, but the realization of said expectation is not guaranteed.