What the 2025 Budget Means for Mining Issuers and Investors

February 25, 2025

Quebec’s March 25, 2025 budget fundamentally reshaped the province’s flow-through share (FTS) regime, significantly altering the economics of FTS financings and the after-tax returns available to investors. With the 2026 tax reporting season underway and transitional relief now expired, mining companies, public issuers, and individual investors must now operate within a materially narrower provincial framework. While Quebec remains one of the world’s most important mining jurisdictions, its tax incentives for exploration investment are no longer the outlier they once were.

Quebec’s Former Competitive Advantage
For many years, Quebec offered one of the most generous provincial incentive packages in Canada for early-stage mining investment. In addition to the federal renunciation of Canadian exploration expenses (CEE), individual investors resident in Quebec — or with Quebec-source income — could claim two additional provincial deductions of 10 percent each. One applied to qualifying mining exploration expenses incurred in Quebec by companies not yet in production, while the other applied to certain surface exploration activities such as prospecting, trenching, and sampling. These deductions materially reduced the effective cost of investing in exploration companies and helped channel retail capital into high-risk projects. Quebec also provided a provincial capital gains exemption for individuals (other than trusts) disposing of qualifying flow-through shares or certain resource properties, further enhancing the tax efficiency of these investments. It is important to note that these provincial incentives were always limited to Quebec taxpayers. Investors outside the province generally could not benefit from them, even when investing in Quebec-based projects.

The Post-Budget Framework
The 2025 budget eliminated these enhanced incentives for new FTS issuances. For shares issued after March 25, 2025:

• The additional 10 percent deductions for mining and surface exploration expenses no longer apply
• The Quebec capital gains exemption for qualifying FTS and resource properties has been abolished for dispositions after that date
• The base 100 percent deduction for eligible expenses renounced to investors remains available

Limited grandfathering rules applied to certain financings tied to prospectuses or public announcements made on or before Budget Day, but that transitional relief expired on January 1, 2026. As of March 2026, all new issuances fall under the revised regime. In practical terms, Quebec’s system now aligns far more closely with the federal framework and with the approach taken by most other provinces.

Implications for Mining CFOs and Public Issuers
The removal of Quebec’s incremental incentives affects not only tax reporting but also the broader dynamics of capital formation. Historically, the enhanced deductions increased after-tax returns for Quebec investors, enabling issuers to raise capital on more favourable terms. Without those incentives, financing conditions may become more sensitive to pricing, dilution, and project risk.

Issuers with Quebec-focused exploration programs should expect investors to place greater emphasis on project fundamentals rather than tax benefits alone. Some capital may shift toward jurisdictions offering richer incentives or toward alternative financing structures. This does not diminish Quebec’s geological potential or strategic importance, but it does alter the balance of factors investors consider when allocating capital.

Public disclosure also warrants careful review. Offering documents, investor presentations, and management discussion and analysis should accurately reflect the current tax landscape. Legacy references to Quebec’s enhanced deductions or capital gains exemption may no longer be appropriate for post-budget offerings, and boards and audit committees should consider whether the reduced attractiveness of the regime could influence financing assumptions or project economics.

From an administrative perspective, the changes place renewed emphasis on accurate tax reporting. RL-11 slips for individuals and RL-11S slips for partnerships must reflect only the deductions available under the new rules. Issuers should review internal processes and controls to minimize reporting errors that could lead to investor reassessments or reputational risk.

Key considerations for issuers now include:

• Reassessing financing strategies and pricing assumptions for Quebec-based projects
• Updating disclosure language in offering documents and investor materials
• Strengthening internal controls over tax reporting and renunciation tracking
• Preparing investor relations teams to address questions about reduced tax benefits

Implications for Individual Investors
For Quebec-resident investors, the elimination of the additional deductions significantly increases the effective cost of new FTS investments. While the federal deduction for renounced exploration expenses remains unchanged, the loss of provincial enhancements reduces overall tax savings and may alter the attractiveness of flow-through shares as a tax-planning tool.

The removal of the Quebec capital gains exemption further changes the investment profile. Gains realized on qualifying flow-through shares will now generally be taxable for Quebec purposes, reducing the potential upside for investors seeking both tax efficiency and capital appreciation.

Investors should also remember that Quebec provincial deductions — including the base deduction — remain available only to Quebec residents or taxpayers with Quebec-source income. Eligibility therefore continues to depend on residency and income allocation, regardless of where the issuing company operates.

In this new environment, investors should exercise particular care when reviewing tax documentation. RL-11 or RL-11S slips should reflect the correct regime based on the issuance date of the shares, and only eligible deductions should be claimed. Incorrect reporting can lead to reassessments, penalties, or delays in processing.

Investors evaluating new offerings may wish to consider:

• The reduced provincial tax benefit relative to historical FTS investments
• The continued availability of federal deductions
• The absence of a Quebec capital gains exemption on future dispositions
• Whether the investment rationale remains compelling absent the former incentives

Communication and Market Expectations
The revised regime is likely to prompt more detailed questions from investors regarding expected after-tax returns and the tax attributes of new offerings. Clear, transparent communication by issuers can help manage expectations and maintain confidence in flow-through programs despite the diminished provincial incentives.

McGovern Hurley Perspective
Quebec remains a premier global mining jurisdiction with strong infrastructure, skilled labour, and significant mineral potential. However, its flow-through share regime no longer provides the exceptional provincial tax leverage that historically distinguished Quebec-focused financings. As a result, project quality, management credibility, and market conditions are likely to play a more prominent role in investment decisions going forward.

McGovern Hurley LLP’s Mining Tax team advises public issuers, CFOs, boards, and investors on flow-through financings, renunciation strategies, and provincial tax compliance across Canada. We would welcome the opportunity to discuss how these changes may affect your organization, financing plans, or investment strategy.