Operators can deduct the exploration allowance in respect of expenses incurred after March 30, 2010, in calculating their annual profit for a fiscal year.
Maximum allowance for an eligible operator
The maximum amount that an eligible operator can deduct as an exploration allowance for a fiscal year is equal to the balance of the cumulative exploration expenses at the end of the fiscal year.
Maximum allowance for an operator other than an eligible operator
The maximum amount that an operator other than an eligible operator can deduct as an exploration allowance for a fiscal year is equal to the lesser of the following amounts:
- the balance of cumulative exploration expenses at the end of the fiscal year;
- 10% of the annual profit before deduction of the exploration allowance, of general and administrative expenses related to exploration work, the pre-production development allowance, the additional exploration allowance, the allowance for community consultations, the environmental studies allowance and the sustainable development certification allowance.
Balance of cumulative exploration expenses
In general, the balance of cumulative exploration expenses of an operator at the end of a fiscal year corresponds to the result of the following calculation:
- the total of the following amounts:
- the operator's exploration expenses incurred after March 30, 2010, other than those that the operator renounced under the Québec or Canadian flow-through share regime, and
- 25% of the above exploration expenses that were incurred in Northern Québec by the operator, and with regard to which the refundable tax credit relating to resources could not be claimed;
- minus any amounts that the operator deducted as an exploration allowance in calculating the annual profit for previous fiscal years.
Exploration expenses are expenses incurred to:
- determine the existence of a mineral substance in Québec;
- locate such a substance; or
- determine the extent or quality of such a substance.
Exploration expenses include:
- expenses incurred in prospecting, carrying out geological, geophysical or geochemical surveys, drilling and trenching or digging test pits, and preliminary sampling;
- expenses incurred after February 2015 for environmental studies or community consultations, provided they are incurred for one of the reasons mentioned above, including expenses incurred for studies and consultations undertaken to obtain, for one of the reasons mentioned above, an exploration right, licence or privilege (50% of the expenses for other reasons can be included in the calculation of the balance of cumulative community consultation expenses, if they are incurred after March 28, 2017, for community consultations, or in the calculation of the balance of cumulative environmental studies expenses, if they are incurred after March 27, 2018, for environmental studies).
Exploration expenses do not include, among others:
- pre-production development expenses;
- post-production development expenses;
- expenses that can be attributed to a mine which has come into production in reasonable commercial quantities or to an actual or potential extension of a mine.