2023 federal budget: important measures supporting Canadian mining development

On March 28, 2023, the Government of Canada delivered the 2023 federal budget (the Budget), which, as part of its commitments to support the energy transition economy in Canada, contained several important measures affecting the Canadian mining industry.

Tax credit for critical mineral extraction and processing

The Budget proposed a new tax credit that applies in respect of critical mineral extraction and processing (Tax Credit). The Tax Credit rate is proposed to be equal to 30% of the capital cost of eligible property associated with eligible activities.

The Budget outlines that eligible property will generally include machinery and equipment (including certain industrial vehicles) used for eligible activities, as well as related control systems.

Importantly, eligible activities also include extraction and certain processing activities related to six critical minerals essential for clean technology supply chains:

• lithium;
• cobalt;
• nickel;
• graphite;
• copper; and
• rare earth elements.

This would include activities both before and after the prime metal stage or its equivalent (generally, this is considered to be the point where the production processes have produced a marketable, saleable commodity which meets the specifications of its consumers).

The tax credit is designed to support accelerated investment in the sector and will phase out over time, as specified in the table below:

Any eligible property that is acquired and available for use after 2034 will not be eligible for the Tax Credit.

Flow-through share treatment (and expansion of the Critical Mineral Exploration Tax Credit) for lithium from brine

In addition to the new Tax Credit, Budget 2023 proposes to include lithium from brines as a mineral resource for certain purposes in the Income Tax Act (Canada), including for the purpose of the flow-through share rules. This should allow:

• relevant principal-business corporations that undertake certain exploration and development activities to issue flow-through shares and renounce expenses to their shareholders; and
• individuals (other than trusts) who invest in flow-through shares to claim the Critical Mineral Exploration Tax Credit (a 30% non-refundable tax credit) in respect of specified critical mineral exploration expenses incurred by the corporation and transferred to the individual under a flow-through share agreement.

The rules surrounding flow-through shares and the renunciation of expenses to shareholders are complex, but the impact of these measures should result in a meaningful premium in offering proceeds for those corporations that qualify and choose to raise equity through flow-through shares, providing support for the development of this source of a critical resource.

Budget support for project development

The Budget also announced two additional measures to support project development in Canada. First, the federal government announced the launch of a $1.5 billion Critical Minerals Infrastructure Fund for the development of energy and transportation projects in support of critical minerals project development. Second, Budget 2023 indicates that the Canada Infrastructure Bank will be mandated to provide loans to Indigenous communities to support equity and other economic stakes in infrastructure projects in which the Canada Infrastructure Bank is also investing.

Looking ahead

The accompanying proposed legislation does not contain specific details regarding the particulars of these measures. Instead, it merely states that future legislation will be proposed in a manner consistent with the Budget 2023 proposals. This leaves a number of important questions to be answered, including what “extraction and certain processing activities” means. Will it include tangible equipment that can be used prior to and during (or even post) commercial production)? What will “certain” processing activities include?