Expenses to determine economic viability of a mine meet the purpose test and are eligible for the BC METC

In Seabridge Gold Inc. v British Columbia, 2025 BCSC 558, a recent case argued by Thorsteinssons LLP, the British Columbia Supreme Court held that expenses incurred to assess the economic viability of a mineral resource are eligible for the British Columbia mining exploration tax credit (“BC METC”) under the Income Tax Act (British Columbia).

In that case, the taxpayer had incurred expenses during the prefeasibility stage to gather information that would allow it to determine the economic viability of mining gold and other metals on its property in British Columbia. The taxpayer claimed those expenses as qualified mining exploration expense (“QMEEs”) eligible for the BC METC. For the expenses to be considered QMEEs, they were required to satisfy the so-called “purpose test” – i.e., they must have been incurred “for the purpose of determining the existence, location, extent, or quality” of a mineral resource in British Columbia.

The Minister denied the expenses on the basis that only those expenses which are incurred to determine the physical characteristics of a mineral resource satisfy the purpose test.

Agreeing with the taxpayer that the term “quality” in the purpose test includes economic viability and is not limited to physical characteristics, the Court wrote:

[70] Indeed, “quality” is an inherently contextual term. In its ordinary sense, quality is used to indicate superiority or excellence, but these terms on their own provide little insight to the underlying meaning. Excellence can only be assessed relative to a purpose or objective; for a kitchen knife, that purpose is for chopping and slicing. For an investment, it is generating financial returns.

[71] The purpose of a deposit, within the context of mining, is to be mined for minerals. Situated in this context, quality refers to those aspects of a deposit that affect its ability to be mined, such as its concentration, ease of access, by-products and ease it may be refined. In practice, these variables are indistinguishable from economic viability, as the more a deposit is fit for purpose — to be mined — the more economically viable the mine. As a result, the ambiguity of the word quality largely evaporates when considered within its entire context.

[…]

[74] As a result, I find that the word “quality” encapsulates the broad range of inputs that determine its degree of excellence or fitness for its purpose: to be mined. This includes factors such as operational costs, capital costs, grade of the mineral, accessibility, chemical composition, and environment risks. For example, an expense incurred to estimate the operational cost of mining would be captured by “quality” and would so be a valid QMEE. However, as noted below, this is subject to the locality restriction of being specific to “a mineral resource in British Columbia”.

According to the Court, this expansive definition of the purpose test was supported by the legislative purpose, which was to recognize the high degree of risk inherent in mining exploration activities and to provide a corresponding benefit in order to encourage and increase such exploration activities.

The Court held that the vast majority of the expenses claimed by the taxpayer – including open-pit and block-cave mine plans and engineering, geotechnical investigations and engineering, engineering relating to water, mine waste, and tailings management, infrastructure design (including electrical), metallurgical testing, and process plant design – were captured by the purpose test. The only expenses that were not allowed were those expenses that were directly related to the drafting of the prefeasibility study.

This case provides much-needed clarity for the BC mining industry. It has not been appealed.