Unlocking Opportunities: Flow-through Shares and Critical Mineral Exploration Tax Credit for Lithium from Brines

The mining industry is constantly evolving, driven by advancements in technology, changes in market demand, and government policies.

In recent years, there has been growing interest in critical minerals, which are essential for various high-tech applications, including renewable energy, electric vehicles, and advanced electronics. Lithium, in particular, has gained significant attention as a key component in the production of lithium-ion batteries, which power many modern devices and vehicles.

To capitalize on the growing demand for lithium and promote exploration and development of this critical mineral, the Canadian government has proposed important changes to the existing tax policies. The budget proposes to include lithium from brines as a mineral resource, allowing eligible corporations to issue flow-through shares and renounce expenses related to these resources to their investors. Additionally, the critical mineral exploration tax credit (CMETC), a non-refundable tax credit introduced in the 2022 budget, would be expanded to include lithium from brines. These proposed changes could open up new opportunities for corporations and investors in the mining industry, providing incentives for exploration and development of lithium resources from brines.

Let’s dive into the details of these proposed changes and understand how they can impact the mining industry and investors interested in lithium from brines.

Flow-through Shares: Unlocking Funding Opportunities

Flow-through shares have been a popular funding mechanism for the mining industry in Canada for several decades. They provide a way for resource exploration companies to raise capital by issuing shares to investors, with the proceeds being used to finance qualifying exploration expenses. In return, investors who purchase these flow-through shares are eligible to claim tax deductions or credits for their share of the expenses renounced by the corporation. This allows exploration companies to raise funds for exploration and development activities, while providing tax incentives to investors.

With the proposed changes in the budget, eligible corporations would be able to issue flow-through shares for the exploration and development of lithium resources from brines. This is a significant development, as lithium from brines was not previously included as a qualifying resource for flow-through shares. This expansion could unlock funding opportunities for corporations engaged in lithium exploration and development, providing them with access to capital to advance their projects.

Eligible expenses related to lithium from brines made after March 28, 2023, would qualify as Canadian exploration expenses (CEE) and Canadian development expenses (CDE). This means that corporations can renounce these expenses to their investors, who can then claim tax deductions or credits for their share of the expenses. This can help offset the risk and cost of exploration and development activities, making it more attractive for investors to support corporations engaged in lithium exploration and development.

It’s important to note that flow-through shares are subject to certain rules and restrictions, and investors need to carefully review the terms and conditions before investing. However, the proposed expansion of flow-through shares to include lithium from brines could create new opportunities for investors interested in supporting the mining industry and participating in the growth of the lithium market.

Critical Mineral Exploration Tax Credit: Boosting Incentives for Lithium from Brines

The Critical Mineral Exploration Tax Credit is a proposed tax credit aimed at boosting incentives for the exploration and development of lithium resources from brines. Brines are underground saltwater reservoirs that contain high concentrations of lithium, which is a critical mineral used in various applications, including batteries for electric vehicles and renewable energy storage.

The tax credit is designed to incentivize companies to invest in the exploration and development of lithium resources from brines by providing them with a tax credit for eligible expenses incurred in the process. Eligible expenses may include costs related to geological surveys, drilling, testing, and other exploration activities associated with identifying and assessing the potential of brine deposits for lithium extraction.

The purpose of the tax credit is to encourage increased exploration and development of lithium resources from brines, which are considered an important source of lithium due to their relatively high concentration of the mineral compared to other sources. By providing a tax credit, the government aims to stimulate investment in critical mineral exploration and development, promote domestic production of lithium, and reduce reliance on imports from other countries.

The tax credit may provide financial incentives for companies to take on the risks and costs associated with exploring and developing lithium resources from brines, which can be a complex and capital-intensive process. It may also help accelerate the timeline for bringing new lithium production projects to market, potentially increasing the domestic supply of lithium and supporting the growth of the lithium-ion battery industry.