Mining industry representatives worry Ottawa is backing away from a 2025 Liberal campaign promise to let flow-through funds cover the engineering, economic and feasibility studies required before a mine can be built.

Backed by companies, provinces and First Nations, the Association for Mineral Exploration has spent the last few months pressing Ottawa to widen what qualifies for Canadian exploration expense claims. 

The change is the only request the association plans to make ahead of the budget, as it looks to capitalize on a government that has made the natural resources sector a priority.

Its CEO, Todd Stone, met with federal officials in Ottawa last week as part of that push and came away cautiously optimistic the change could be in the next budget. 

But since then, the association says it has seen signs the federal government has little appetite for the change. It says Finance Canada has put the cost at $10 billion and argued the Productivity Mega Deduction already covers what the industry is asking for. A spokesperson for the finance minister reiterated this point to iPolitics on Wednesday morning.

The Productivity Mega Deduction, announced at the Canada Investment Summit in Toronto on Sept. 15, lets companies immediately write off the cost of a wide range of capital assets, including machinery and equipment. The federal government estimates that measure will cost about $36 billion over five years.

Companies building mines stand to benefit, but junior miners say it won’t help explorers because it doesn’t cover the feasibility studies needed to turn a promising project into a full-fledged mine.

First Phosphate Corp. CEO John Passalacqua says letting flow-through financing cover feasibility work is what many companies need to advance their projects. The tax measure lets junior miners pass eligible exploration costs on to investors, who deduct them from their own taxable income.

READ MORE: Miners press Ottawa to honour tax pledge and help projects survive the ‘Valley of Death’

First Phosphate is developing a phosphate project in Quebec’s Saguenay region. Ottawa has backed the work with $16 million in March and nearly $5 million from the First and Last Mile Fund in August.

Passalacqua says the company probably wouldn’t have needed that money if Ottawa had expanded flow-through eligibility. “We could have done it all through flow-through funds, but since we weren’t able to, we needed that contribution from the federal government,” he tells iPolitics.

“Wherever they make it easier to use flow-through funding for expenses on mining activities, the more projects become mines, and the less the federal government will have to finance them itself,” Passalacqua said. “End of story.”

Measure would cost billions in foregone revenue

It’s unclear why the federal government has, so far, shied away from its 2025 tax promise to expand eligibility. 

An industry source tells iPolitics confidentially that it was one of Minister Tim Hodgson’s top asks going into the last federal budget, although a spokesperson for this office declined to comment on that this week. 

Finance Canada has told industry groups the change could cost about $10 billion in forgone tax revenue as more expenses become deductible.

An EY report commissioned by the association estimates expanding the tax incentives could cost about $6.6 billion in forgone tax revenue over 10 years, or roughly $660 million a year.

The report says the expanded incentives could boost economic activity and accelerate three to five mines within a decade. EY says the figures are not predictions and notes that exploration is inherently a high-risk business.