Quebec Budget 2025-26: Important Changes to Quebec Flow-Through Share Regime and Refundable Tax Credit Regime for Mining and Other Resources

Written By Julia Qian Wang, Philip Ward and Antoine Messervier

The 2025-26 Quebec budget, released on March 25, 2025, includes important (and adverse) changes to the deductions and exemptions available under the Quebec flow-through share regime, removing many of the additional provincial tax benefits available to Quebec flow-through share subscribers. The budget also announced significant amendments to the provincial refundable tax credit regime relating to mining or other resources, which expand the credit to apply in respect of certain development expenditures and increase the rate of the credit with respect to projects dedicated to certain critical and strategic minerals, but generally reduce the rate applicable to other mineral exploration. A summary of these changes is provided below.

Changes to the Quebec Flow-through Share Regime

The Quebec flow-through share regime, like the corresponding federal regime, allows taxpayers (the FT Purchasers) that subscribe for flow-through shares to deduct up to 100 percent of the share acquisition cost from their income, provided that the gross subscription price received by the issuing corporation is used to incur qualifying mineral exploration expenses in Canada, and that the expenses incurred are renounced by such corporation in favour of the FT Purchasers. Quebec also offered certain additional provincial tax benefits to flow-through share investors to further facilitate mineral exploration in Quebec, including additional deductions and a capital gains exemption on the disposition of certain flow-through shares, both of which are terminated under the budget.

1. Termination of additional deductions in respect of certain Quebec exploration expenses and certain Quebec surface mining exploration expenses 

Prior to the 2025-26 Quebec budget, the Quebec flow-through share regime provided for two additional deductions to a FT Purchaser that is an individual resident or subject to tax in Quebec: the additional 10 percent deduction in respect of certain exploration expenses incurred in Quebec and the additional 10 percent deduction in respect of certain surface mining exploration expenses incurred in Quebec. The effect of these additional deductions was that individual Quebec taxpayers could in aggregate deduct 120 percent of qualifying Quebec exploration expenditures renounced to them through flow-through shares.

The 2025-26 Quebec budget terminates both the additional 10 percent deduction in respect of certain Quebec exploration expenses and the additional 10 percent deduction in respect of certain Quebec surface mining exploration expenses available under the flow-through share regime. 

These changes will apply to flow-through shares issued after March 25, 2025. However, certain "grandfathering" rules may apply to exclude certain flow-through share offerings that were in progress at the time of the budget. Flow-through shares issued following an application for a receipt for a preliminary prospectus made on or before March 25, 2025, will be grandfathered if the shares are issued before January 1, 2026. Similarly, flow-through shares issued following a public announcement made on or before March 25, 2025, will be grandfathered if the report of distribution form is submitted to the Autorité des marchés financiers on or before May 31, 2025. 

2. Termination of additional capital gains exemption in respect of certain resource properties 

Flow-through shares are deemed to have a cost of nil to FT Purchasers, generally meaning that under the federal flow-through share regime (and subject to certain basis averaging rules), the FT Purchaser would realize a capital gain equal to the full proceeds of disposition upon disposition of flow-through shares. Prior to the Quebec 2025-26 budget, an additional capital gains exemption applied for Quebec income tax purposes to dispositions of certain flow-through shares or an interest in a partnership holding such flow-through shares, which alleviated the impact of the deemed nil cost of the shares for Quebec taxpayers. Budget 2025-26 terminates this additional provincial capital gains exemption, applying to dispositions made after March 25, 2025. 

Changes to the Refundable Tax Credit Regime Relating to Mining or Other Resources

Quebec offers a refundable provincial tax credit regime for mining companies that have an establishment and carry on business in Quebec, in respect of certain mineral exploration expenditures incurred in Quebec that are not renounced to flow-through share subscribers. The rate of the credit varies depending on whether the company (or an associated company) operates a mine or oil and gas well, with a larger credit being available to junior exploration companies without mineral resources under commercial operation (referred to as "specified qualified corporations" in the budget). The Quebec 2025-26 budget significantly revamps the regime, including the following changes: 

1. the credit, which prior to the budget only applied in respect of exploration expenses, is expanded to also apply to development expenses incurred after March 25, 2025; 
2. the distinction between activities in the Plan Nord territory and activities elsewhere in Quebec is eliminated; 
3. enhanced tax credit rates (being double the rates applicable to other projects) apply to eligible expenses that are mainly attributable to certain "critical" and "strategic" minerals: a rate of 45 percent applies in respect of such expenses incurred by specified qualified corporations, and a rate of 20 percent applies in respect of such expenses incurred by other qualified corporations. The enhanced rates will apply to eligible expenses incurred after March 25, 2025, but incurred and paid before January 1, 2030, following which the rates applicable to eligible expenses related to other mining resources will apply;
4. the tax credit rates for eligible expenses related to non-critical or strategic mineral resources incurred after March 25, 2025 are revised to 22.5 percent in respect of such expenses incurred by specified qualified corporations, and 10 percent in respect of such expenses incurred by other qualified corporations (as compared to rates of 28 percent and 12 percent, respectively, that were available for Quebec exploration outside of the Plan Nord territory prior to the budget); and
5. a new cap of $100 million per five-year period is introduced to limit expenses eligible for the credit. This limit is shared between corporations that are members of an associated group and will apply to the taxation year of an eligible corporation or an eligible partnership that begins after March 25, 2025.

Key Takeaways

Prior to the recent budget, the provincial tax benefits offered under the Quebec flow-through share regime enabled mining companies to raise capital for mineral exploration in Quebec at significant premiums, even compared to flow-through share issuances in other Canadian provinces. It is expected that these changes to the Quebec flow-through share regime will significantly affect the front-end subscription price for Quebec flow-through share offerings going forward, resulting in a significantly lower premium that will more closely align with national (non-Quebec) flow-through share offerings. On the other hand, the expansion of the refundable credit to development activities is welcome news for mining companies moving beyond the exploration phase, and companies targeting critical and strategic minerals may benefit from the enhanced credit rates for these types of projects. Mining companies aiming to raise capital for mineral exploration or development in Quebec should consider the impacts of both the reduced flow-through share benefits and the revamped refundable tax credit regime when determining how to structure financings going forward.

To discuss the potential impact of any of these key changes, please contact Julia Qian Wang, Philip Ward and Antoine Messervier.

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