On March 25 last, the Quebec Minister of Finance unveiled his 2025-2026 budget, which significantly transforms the tax landscape of the mining sector in Quebec. This budget introduces major changes to the flow-through share regime and to the tax credit relating to resources, which will have significant implications for investors and businesses in the natural resources sector. Changes to the flow-through share regime Abolition of both 10% additional deductions As part of the review of its tax expenditures, the government has decided to adjust the flow-through share regime. As a result, the following deductions have been abolished: the additional 10% deduction for certain exploration expenses incurred in Quebec by a mining corporation that does not exploit any mineral resources; the additional 10% deduction for certain surface mining exploration expenses incurred in Quebec by a mining corporation that does not exploit any mineral resources. With some exceptions1, these changes will apply to flow-through shares issued after March 25, 2025. It should also be noted that the budget abolishes the additional capital gains exemption resulting from the divestiture of certain resource-related properties, such as flow-through shares. On the other hand, the additional deduction for certain issuance costs seems to be maintained. Changes to the tax credit relating to resources Despite these abolitions, the budget does include some positive news for the critical and strategic metals sector. The budget provides for a temporary increase in the rates of the tax credit relating to resources for eligible expenses related to critical and strategic minerals. Until December 31, 2029, a 45% tax credit rate will apply to these costs for eligible corporations, that is, those that do not exploit any mineral resources, and 20% for other eligible corporations, that is, those that exploit mineral resources. For the purposes of the tax credit relating to resources, critical minerals will refer to the following minerals: antimony, bismuth, cadmium, cesium, copper, tin, gallium, indium, tellurium and zinc. Strategic minerals are defined as cobalt, rare earth elements, platinum group elements, graphite (natural), lithium, magnesium, nickel, niobium, scandium, tantalum, titanium and vanadium. Several other technical changes have also been made to the tax credit relating to resources. These will be the subject of a more detailed bulletin at a later date. The changes introduced by the 2025-2026 Quebec budget will certainly have an impact on the tax planning of enterprises and investors in the natural resources sector. Our team of mining law and tax professionals is ready to answer all your questions regarding these new measures. We can assist you in developing your mining investment projects in Quebec, maximizing the benefits of the enhanced rates of the tax credit relating to resources, as well as in implementing successful flow-through financing. These amendments will not apply to shares issued after March 25, 2025, but before January 1, 2026, provided that they are issued following an application for a preliminary prospectus receipt made no later than March 25, 2025. Nor will they apply to shares issued after March 25, 2025, if issued following a public announcement made no later than March 25, 2025, and if the report of distribution form is submitted to the Autorité des marchés financiers no later than May 31, 2025.

In a strategic move to bolster domestic production of critical minerals, President Donald Trump has invoked the Defense Production Act (DPA). He signed an executive order aiming to reduce U.S. dependence on foreign sources, particularly China, which dominates the global rare earth minerals market. This market dominance poses economic and security risks for countries reliant on these materials for advanced technologies, such as the U.S. and Canada. The executive order leverages the DPA to provide financing, loans, and investment support for domestic processing of rare earth elements (REEs) and critical rare earth elements (CREEs). REEs are profoundly valuable and are essential in the manufacture of electronics (e.g., microchips, semiconductors, and essentially any product with a computer chip).  This initiative seeks to enhance national security by ensuring a stable supply of materials essential for technologies ranging from batteries to defense systems. Standard NdFeB magnets, without terbium (Tb) or dysprosium (Dy), cannot be used in high-temperature applications such as in electric vehicles (EV) critical components.  The production of high-value pre-magnetic REE alloys, requires the purchase of separated Tb and Dy oxides from China. Recent concerns about future supplies of REEs have now narrowed chiefly to the heavy rare earth elements (HREEs). Essentially, all of the world's HREEs are currently sourced from the south China ion-adsorption clay deposits.  The ability of those deposits to maintain and increase production is uncertain, particularly in light of environmental degradation associated with some mining and extraction operations in the region. As the U.S. intensifies efforts to secure its mineral supply chains, Canada, rich in mineral resources, has an opportunity to strengthen its position as a key supplier. However, Canada must also navigate its own strategic interests, ensuring that domestic extraction and processing capabilities remain competitive. REE mineral deposits typically contain appreciable levels of radioactive elements such as thorium (Th) and uranium (U), making the extraction of REE values environmentally challenging.  Novel processes for the extraction and separation of REE values in high yield and purity, with an environmentally cleaner design and overcoming the technical and economic limitations of the existing commercial processes, are of commercial interest. Additionally, diversifying export markets beyond the U.S. could shield Canada from potential shifts in American policy while strengthening its role as a global player in the critical minerals industry. As the Trump administration’s directive underscores the strategic importance of CREEs and the necessity to develop resilient supply chains, we can expect more news in the upcoming months from the U.S. regarding its efforts to lessen its dependence on other countries in the mining industry. Stay tuned!