Federal budget quietly scraps AMT relief for flow-through shares, reshaping tax planning strategies
A major tax policy reversal buried deep in a federal budget footnote has left many in Canada’s resource and investment sectors reeling.
The government quietly scrapped a proposal to make resource expense deductions fully allowable under the Alternative Minimum Tax (AMT) regime.
According to industry leaders cited by the Financial Post, this move could have unlocked hundreds of millions in exploration financing and supported charitable giving strategies.
The change, revealed only in a footnote to Table A1.18 on page 277 of the budget, was described by John Oakey, vice-president taxation with the Chartered Professional Accountants of Canada, as a significant policy reversal that “should receive appropriate consideration in the budget document.”
Oakey added, “Announcing tax policy changes in budget footnotes is not an appropriate way to inform taxpayers or their advisor,” as reported by the Financial Post.
The now-abandoned proposal, initially introduced in draft legislation in August 2024, would have allowed resource expense deductions and related interest to be 100 percent deductible for AMT purposes.
This was welcomed by flow-through share investors and those leveraging these structures for charitable giving, since such expenses were previously added back in full under the AMT calculation.
However, the legislation died on the order paper and was not revived in the latest budget.
Henry Korenblum, vice-president of sales and tax planning with Oberon Capital Corp., expressed disappointment with the government’s decision. “It is disappointing that the government has decided to abandon these proposals,” he said.
He explained in an email to Financial Post that the proposals “would have provided support to the natural resource and mining sector and which would have increased an investor’s or donor’s flow-through capacity.”
Ron Bernbaum, founder and CEO of PearTree Financial Services Ltd., noted that analysis provided to the Department of Finance earlier in 2024 demonstrated the potential impact of eliminating the CEE addback to AMT.
He said this change could have resulted in at least $350m annually in new exploration financing, with immediate impact and job creation.
“We expected to see it back in the budget. It wasn’t,” Bernbaum told the Financial Post.
Beyond the AMT reversal, the budget also proposed changes to the flow-through share regime.
The government plans to expand the list of critical minerals eligible for the Critical Mineral Exploration Tax Credit (CMETC) to include bismuth, cesium, chromium, fluorspar, germanium, indium, manganese, molybdenum, niobium, tantalum, tin, and tungsten, as reported by the Financial Post.
However, the government is also tightening the definition of Canadian exploration expenses (CEE).
According to the Financial Post, the budget proposes to clarify that expenses related to determining the economic viability or engineering feasibility of a mineral resource will no longer qualify as CEE, following a recent court decision that broadened the interpretation of “quality” in this context.
