CANADA Law and Practice Contributed by: Darrell Podowski, Jennifer Poirier, Joel Matson and Simi Fagbongbe, Cassels Brock & Blackwell LLP
ly deductible when computing income for income tax purposes. • The depreciation of tangible assets for income tax purposes is allowed under the CCA system, under which the capital cost of a depreciable asset is included in a particular asset class, for which a maximum annual depreciation rate is prescribed. • Certain other resource or mining expenses may also be deducted on a current or declining-balance basis. These expenses are added to cumulative resource pools classified as Canadian explora - tion expenses (CEE) and Canadian development expenses (CDE). (a) CEE include expenses that are incurred by the taxpayer for the purpose of determining the existence, location, extent or quality of a mineral resource in Canada. Generally, CEE may be deducted at a rate of 100%, up to the taxpayer’s income for the year. Any unclaimed CEE may be carried forward indefinitely. CEE deductibility for certain expenses has been restricted in the most recent federal budget. (b) CDE include expenses that are not CEE and are incurred for the purpose of bringing a new mine in Canada into production (ie, pre-produc - tion mine development expenses). CDE may be deducted at a rate of 30% on a declining- balance basis. Unclaimed CDE may be carried forward indefinitely. An enhanced deduction is also available for certain CDE incurred after 20 November 2018 and before 2028 (Accelerated CDE). Accelerated CDE incurred from 2024 through 2027 qualify for an additional deduc - tion of 7.5%. • Certain corporations carrying out exploration and mining activities in Canada can issue flow-through shares, pursuant to which the tax deductions attributable to certain expenditures incurred (such as CDE and CEE) are renounced by the corpora - tion to the flow-through shareholders, such that the shareholders (and not the corporation) may deduct the renounced expenditures in computing their income. An additional 15% federal Mineral Explo - ration Tax Credit (METC) is available with respect to certain flow-through mining expenditures (generally referred to as “grassroots exploration” expenses). Many provinces offer parallel credits as high as 30% in some circumstances.
• The Critical Mineral Exploration Tax Credit (CMETC) is a 30% federal tax credit for eligible flow-through mining expenditures renounced under eligible flow-through share agreements entered into between 7 April 2022 and 31 March 2027. Among other requirements, eligible expenditures must be exploration expenses that primarily target deposits containing mostly (more than 50%) certain critical minerals. Eligible expenditures are not permitted to benefit from both the CMETC and the METC. • A refundable 30% investment tax credit – the “Clean Technology Manufacturing Investment Tax Credit” – was introduced for 2024, and made avail - able for corporations that acquired certain new clean technology manufacturing property used primarily to produce specified critical minerals. • Contributions made to a qualifying environmental trust used to fund future reclamation are deductible in the year in which they are made (as opposed to reclamation expenses, which are generally rec - ognised for income tax purposes at the time the reclamation is carried out). Canada does not offer tax stabilisation agreements to non-resident investors in the mining industry. 4.3 Transfer Tax and Capital Gains on the Sale of Mining Projects A mining project may be disposed of by way of a sale of the mining assets or of the relevant entity in which the mining project is held. The disposition of capi - tal property in Canada generally results in a capital gain (or loss), with one-half of any capital gain being included in income. The disposition of mining assets may result in income (in the case of resource prop - erty), recapture (in the case of depreciable property) and capital gains on capital property. Non-residents are subject to tax in Canada on the disposition of “taxable Canadian property”, which includes: • real property and resource property situated in Canada; • property used by the taxpayer in certain business - es carried on in Canada; and
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