CEE Expanded to Include Certain Costs of Environmental Studies and Community Consultations

Many expenditures made by mining companies that are not on depreciable property for tax purposes fall into one of two categories of expenditures unique to the natural resource industry: "Canadian exploration expense" (CEE) or "Canadian development expense" (CDE). Essentially, CEE amounts can be 100%-deducted in the year they are incurred, while CDE amounts are deducted at the rate of 30% per year on a declining balance basis.

CEE is essentially limited to most expenses incurred for the purpose of determining the existence, location, extent or quality of a mineral resource in Canada (certain "pre-production development expenses" incurred to bring a new mine into production are being transitioned from CEE to CDE under changes announced in 201​3​​).  Mineral exploration often involves very significant expenditures on environmental studies and community consultations ("ESCC expenses").  Historically, the position of the Canada Revenue Agency ("CRA") has been that such costs undertaken in order to obtain an exploration permit were not CEE (CRA document 2007-0252761E5, dated September 19, 2007).  As a result, these expenses were not fully deductible in the year incurred, nor were they eligible for renunciation to investors of flow-through shares.  Flow-through shares are a financing tool that allows a mining company to renounce CEE (and the resulting tax deductions) it incurs to purchasers of certain qualifying shares that it issues ("flow-through shares"), permitting the mining company to charge investors a premium for such shares.

In order to encourage resource exploration in Canada, the Department of Finance has announced that ESCC expenses incurred after February 2015 as a pre-condition to obtaining a licence or permit to explore will henceforth be included in CEE.  This announcement is a positive development for the Canadian mining industry, particularly as ESCC costs and obligations escalate year by year.

Mineral Exploration Tax Credit Extended

Individuals (other than trusts) who invest in flow-through shares may be entitled to additional tax benefits above and beyond renounced exploration expenses available on all flow-through shares.  Where certain qualifying expenditures (essentially CEE incurred in mining exploration above or at ground level conducted in Canada) are incurred and renounced to a holder of flow-through shares that is an individual (other than a trust), that holder is entitled to an investment tax credit equal to 15% of the renounced qualifying expenditures.  This tax credit on "grass-roots" surface exploration expenditures is called the "mineral exploration tax credit."

The ITA currently requires that qualifying expenditures must be renounced to the investor under an agreement made before April 2015.  The Department of Finance has extended the 15% mineral exploration tax credit for another year, by extending to March 31, 2016 the deadline for the corporation and the investor to enter into the flow-through share subscription agreement governing renunciation.  Flow-through share financing is an important part of Canada's support for the mining industry, and the extension of the mineral exploration tax credit continues to enhance the attractiveness of flow-through share financing in what are challenging times for the mining industry.


Steve Suarez 


Corporate Tax