Industry groups within Canada’s mining industry say the current tax regime leaves a financing gap between exploration and construction that can prevent promising mineral discoveries from advancing. To close that gap, Canada’s mineral exploration sector is urging the federal government to expand tax incentives to cover engineering, feasibility and other project-advancement work.

The Association for Mineral Exploration (AME) made the request in a July 17 letter to Minister of Finance and National Revenue François-Philippe Champagne. Under the Canadian Exploration Expenses (CEE) tax category, companies can use flow-through shares to finance eligible mineral exploration work, with those expenses passed on to investors for tax deductions. The incentive generally applies to early-stage exploration costs, while excluding engineering and economic studies used to advance a discovery towards development.

The association wants CEE eligibility expanded to cover preliminary economic assessments, prefeasibility studies, geotechnical work, engineering studies, environmental baseline programs and related technical work.

If that does not happen, AME is proposing that the federal government create a new Mineral Project Advancement Tax Credit aimed at the same costs.

According to Todd Stone, president and CEO of AME, more than 80 companies and organizations have already signed the letter, including PDAC, the Mining Association of Canada, Newmont, Agnico Eagle and FPX Nickel.

“Project advancement is not optional or secondary work, it’s the stage that proves whether a discovery is technically sound, economically viable and ready to move towards construction,” Stone said in a July 29 news release. “This is about ensuring a strong supply of early-stage projects into the pipeline to ensure new mining projects come online for generations to come in Canada.”

Advancing projects beyond exploration

The issue for industry centres on where exploration ends and project development begins for tax purposes. Under the CEE regime, mining companies can use flow-through shares to pass eligible exploration expenses on to investors, who may claim an immediate 100-per-cent deduction. Certain qualifying expenses may also be eligible for the Mineral Exploration Tax Credit or Critical Mineral Exploration Tax Credit.

Technical and economic studies have generally been treated differently. The 2025 federal budget said the Canada Revenue Agency had historically interpreted the “quality” of a mineral resource, for CEE purposes, as referring to the characteristics of the ore body; expenses for assessing the engineering or economic feasibility of extracting the resource were excluded from this definition.

That interpretation was challenged in March 2025, when the B.C. Supreme Court ruled in the Seabridge Gold Inc. versus British Columbia case that nearly identical wording in the province’s mining exploration tax credit could encompass expenses used to assess a resource’s economic viability. Budget 2025 then proposed amending the federal CEE rules to make clear that economic and engineering assessments are excluded.

That change is now before Parliament in Bill C-31. The bill, currently with the Senate finance committee, would replace “quality” in the CEE definition with “inherent natural qualities.”

In its letter, AME said it understands why the government wants to keep flow-through financing focused on exploration. But it argued Ottawa should create a comparable incentive for specific project-advancement work.

“The current system supports early-stage exploration and later-stage construction and operations, but there’s a gap that remains in between,” Stone said in an email to CIM Magazine. “Engineering costs are integral to demonstrating a resource’s quality and advancing it from discovery to development; their exclusion misses an important gap that prevents us from building more mines in Canada.” He added that Canada can close that gap and build a more robust pipeline of future mining projects with tax changes like the suggestion to expand the CEE eligibility.

The funding gap

PDAC President Karen Rees said restrictions on how flow-through funds can be spent are creating a financing obstacle as projects move towards feasibility.

“Most mineral discoveries in Canada, as well as the feasibility work required to advance new mines, are undertaken by non-cash-flowing junior companies that rely heavily on flow-through shares to fund exploration,” she said in an email to CIM Magazine.

“Too many projects are reaching an impasse, where incentive dollars may be available in the marketplace or already on their balance sheets but are untouchable because of the way the tax code restricts flow-through spending. At this point in the development cycle, hard dollars are extremely scarce, and viable projects are failing to reach feasibility simply because capital is unavailable.”

Rees described the period between early exploration and a construction decision as a financing “valley of death” when projects need extensive engineering and technical work but struggle to attract risk capital or debt.

“Expanding CEE eligibility to include technical and economic scoping work can help projects jump across the so-called ‘valley of death,’” Rees said. “It doesn’t change the cost to the federal government of administering the flow-through regime, and it means more companies can move along the value-creation continuum and generate more opportunities for explorers, investors and Canadian industry.”

Companies supporting the policy change said the change would help fund the evidence needed before boards and investors can approve construction of projects. Martin Turenne, FPX Nickel president and CEO, said in a news release it could be important as FPX Nickel develops its projects.

“As we advance our nickel projects towards development, this is exactly the kind of support that helps a company like ours accelerate the journey between discovery and construction,” he added.

FPX is advancing the Baptiste nickel project in central British Columbia. The project entered the federal and provincial environmental assessment process in January 2026, and in June the company said the Impact Assessment Agency of Canada had confirmed that a federal assessment would be required and coordinated with the provincial review.

“Every step forward depends on being able to fund the technical work that demonstrates a project’s technical, economic and environmental feasibility,” Turenne added. “The expansion of the CEE would be invaluable to funding that work and ultimately advancing our project to a positive final investment decision.”