Proposed legislative changes to Canada’s alternative minimum tax (AMT) could reduce the tax advantages associated with flow-through shares, including the critical mineral exploration tax credit (CMETC) recently introduced to stimulate investment in critical mineral exploration. The changes to the AMT are set to be effective in January 2024.
Andrew Disipio, Philip Ward and Andrew Young write in Canadian Mining Journal about what the proposed changes to the AMT are, the impact of the changes what they could mean for investment in critical mineral exploration. They explain that:
"As most individuals who invest in flow-through shares are high-income earners, stakeholders are concerned that the new AMT rules will lead to a decrease in investment into flow-through shares by significantly reducing many investors’ participation capacity. Under the new AMT regime, a high-income individual would only be able to invest a lower amount in flow-through shares before becoming subject to AMT.
Furthermore, under the new rules, 30% of capital gains realized on the donation of flow-through shares would be included in determining the AMT. As many flow-through shares’ investors subscribe in connection with a donation strategy, the proposed AMT rules further disincentivize a major component of the flow-through share regime.
The proposed amendments to the AMT rules could reduce the tax incentives to invest in critical mineral exploration. Mineral exploration companies should be cognizant of these proposed legislative changes, and their potential dampening effect on the demand for flow-through shares once they come into effect. In the short-term, there may be increased demand for the remainder of 2023 while the current AMT rules remain in force."
The full article is available here.
Bennett Jones