Revenue Quebec interprets the purpose test in the Canadian exploration expense definition narrowly

Revenue Quebec considers that expenses which are incidental to mineral exploration work qualify as Canadian exploration expense only if they are necessary for the performance of the work (which implicitly entails a review of the company’s business judgment). This interpretation does not appear to accord with the CEE definition which, in its relevant aspect, requires only that the expense have been incurred for the purpose of finding or assessing a mineral resource.

Subpara. (v.1) of (f) the CEE definition excludes an expense, incurred before a new mine comes into production in reasonable commercial quantities

that results in revenue or can reasonably be expected to result in revenue earned before the new mine comes into production in reasonable commercial quantities, except to the extent that the total of all such expenses exceeds the total of those revenues.

The apparent CRA position is that this provision can extend to revenue (e.g., from the sale of gold recovered in sampling operations, or from mill operations prior to a quarter in which it has not operated continuously at 60% of capacity) that arises in a year subsequent to that in which the expenses are incurred. This can give rise to very difficult allocation and matching issues.

Neal Armstrong. Summaries of Emmanuel Sala, "Flow-Through Share Financing: Recent Developments, Traps and Tips," 2015 CTF Annual Conference draft paper under s. 66.1(6) – Canadian exploration expense – (f), s. 66(12.6)(a), s. 66(15) – flow-through share.