Canada’s mining sector is at an important inflection point. Against a backdrop of growing global demand for critical minerals and increased competition for investment capital, the Canadian federal government has recently introduced a series of tax measures designed to encourage investment and strengthen the competitiveness of Canada’s mining industry. For investors, these measures may meaningfully influence the after-tax economics of projects and financing structures across the mining value chain.
This bulletin examines the key recent measures and their potential implications for investors considering mining opportunities in Canada.
Key Developments
1. Immediate Expensing of “Canadian Development Expense” (CDE) Incurred on or After September 15, 2026
CDE is a tax attribute that is ordinarily deductible at a rate of 30% of the cumulative CDE pool balance. CDE includes certain costs and expenses incurred to drill, convert or recomplete certain wells, bring a mineral resource into production (under certain circumstances), such as bituminous sands deposits and oil shale deposits, and preserve rights in respect of such property.
Subsection 66.2(5) is proposed to be amended to add a definition of “immediate Canadian development expense,” defined to mean any cost or expense incurred by the taxpayer if such cost or expense:
- Qualifies as CDE at the time it is incurred, other than a successored CDE or a cost related to a Canadian resource property acquired by the taxpayer (or a partnership in which the taxpayer is a member) from a person or partnership with which the taxpayer does not deal at arm’s length
- Is incurred on or after September 15, 2026
- In respect of flow-through shares, is an amount renounced under an agreement entered into on or after September 15, 2026
This proposed amendment provides an additional financial incentive to investors with respect to flow-through share investments in mineral exploration companies entering the development phase of their Canadian projects.
2. Expansion of the Critical Mineral Exploration Tax Credit (CMETC)
Individuals investing in eligible flow-through shares may benefit from the CMETC equal to 30% of specified mineral exploration expenses incurred in Canada and renounced to flow-through share investors.
Prior to November 4, 2025, the critical minerals that were eligible for the CMETC included nickel, cobalt, graphite, copper, rare earth elements, vanadium, tellurium, gallium, scandium, titanium, magnesium, zinc, platinum group metals, uranium and lithium (including lithium from brines).
The definition of “critical minerals” was expanded to include an additional 12 critical minerals necessary for defence, semiconductors, energy and clean technologies. The additional minerals are bismuth, cesium, chromium, fluorspar, germanium, indium, manganese, molybdenum, niobium, tantalum, tin and tungsten.
This expanded definition applies to expenditures renounced under eligible flow-through share agreements entered into after November 4, 2025, and on or before March 31, 2027.
3. Clarification of Eligible Activities Under the “Canadian Exploration Expense” (CEE)
CEE is a tax attribute that is ordinarily deductible at a rate of 100%. CEE includes certain costs and expenses incurred for the purpose of determining the existence, location, extent or quality of a mineral resource in Canada. The determination of a mineral resource’s “quality” for CEE purposes historically has been interpreted by the Canada Revenue Agency to relate to the resource’s underlying physical characteristics.
A 2025 decision from the Supreme Court of British Columbia interpreted the term “quality” to include not just the direct physical characteristics of the mineral resource but also the broad range of factors that inform the economic viability of its extraction.
In response to this decision, Budget 2025 (through proposed amendments tabled on May 4, 2026) proposed to amend the Income Tax Act (Canada) to limit “quality” to the “inherent natural quality” of a mineral resource in Canada. The Department of Finance has stated this would not include expenses related to determining the economic viability or engineering feasibility of the mineral resource. This amendment would apply as of November 4, 2025.
4. Flow-Through Shares Remain a Viable Option to Finance Mining Operations
The issuance of flow-through shares remains an attractive method of raising capital for mineral exploration companies with projects in Canada, as it provides flow-through shareholders with significant tax benefits.
Flow-through shareholders may benefit from CEE, “Canadian renewable and conservation expenses” (CRCE) and CDE that are renounced to the flow-through shareholder.
In light of the proposed legislation providing for the immediate expensing of CDE, as discussed above, flow-through shareholders can effectively receive a full deduction in respect of renounced CEE, CRCE and CDE. Where such activities relate to exploration, individual flow-through shareholders may also benefit from the receipt of:
- Federal credits (to be applied against federal tax owing), such as the CMETC or the mineral exploration tax credit, as applicable and depending on the nature of the mining activities
- Provincial credits (to be applied against provincial tax owing) such as the B.C. mining flow-through share tax credit, Saskatchewan mineral exploration tax credit, Manitoba mineral exploration tax credit and the Ontario focused flow-through share tax credit, as applicable
5. Funding to Support Critical Mineral Projects
Canada Critical Minerals Accelerator
The Canada Critical Minerals Accelerator is designed to provide a variety of financing tools, such as equity investments, loan guarantees and supply agreements for critical minerals projects and companies. This fund is expected to provide C$2-billion over five years on a cash basis.
The Canada Critical Minerals Accelerator announced its first investment in July 2026. The Government of Canada announced it will invest up to C$400-million to support the expansion of Teck Resources’ smelting and refining complex in Trail, B.C.
The First and Last Mile Fund
The First and Last Mile Fund supports the development of critical minerals projects and supply chains, with a focus on getting near-term projects into production. The First and Last Mile Fund is expected to absorb the existing Critical Minerals Infrastructure Fund and leverage its existing funding envelope to provide up to C$1.5-billion in support through 2029–2030.
The First and Last Mile Fund (including through the subsumed Critical Mineral Infrastructure Fund) has approved or conditionally approved for funding over 45 critical mineral development projects and over 35 Indigenous capacity initiatives.
For further reading on tax measures impacting the mining sector, see our September 2026 bulletin, Canada Announces Productivity Mega Deduction, and our June 2026 bulletin, Expanding Alberta’s Energy and Digital Infrastructure: Select Tax Considerations for Major Projects.
For more information, please contact the authors or any other member of our Tax group.
