Frontier Lithium – Federal Court finds that CRA failed to adequately respond to a cogent request that it grant a late CEE renunciation under s. 66(12.741)

On December 14, 2021, Frontier entered into subscription agreements with investors pursuant to which it agreed to incur $12 million in Canadian exploration expenses (CEE) by the end of 2022 and to renounce such CEE to the investors with an effective date of December 31, 2021 pursuant to the look-back rule in s. 66(12.66). However, due to a delay in securing the necessary permits, $5 million of the required CEE was not incurred until 2023. As a result, only $7 million had been validly renounced under the look-back rule.

In May 2025, Frontier sought CRA approval pursuant to s. 66(12.741) for a late renunciation of the $5 million of CEE for the 2023 year. CRA denied this request. First, the subscription agreements did not allow for the renunciation of CEE incurred after 2022. Second, in its opinion it would not be “just and equitable” to authorize the second renunciation, as Frontier had made no attempt to amend the subscription agreements to permit the CEE to be incurred in 2023. Furthermore, any financial devastation suffered by Frontier resulted from its own failures regarding the flow-through share filings and failure to ensure that the necessary permits were in place before proceeding with the financing.

Regarding CRA’s first ground for refusal, Régimbald J found that Frontier had made a “sufficiently strong” submission to “require a proper analysis and response” from CRA. The text of the “flow-through share” definition in s. 66(15) merely required an agreement in writing for the issuer to incur the CEE within the 24-month general rule period, and the s. 66(12.6) text merely required that the CEE indeed be incurred within the general rule period, and such text contained no requirement that the CEE be incurred within any shorter period specified in the subscription agreements. Instead, “the CRA provided no explanation as to why its interpretation prevailed over Frontier's arguments and better complied with the text of the provisions, the purpose of the flow-through program and the intent of Parliament.”

CRA’s decision that it would not be just and equitable to authorize a late second renunciation was questionable. CRA did not meaningfully address Frontier’s submission that it would be financially devastated without such authorization. Furthermore, other findings under this heading were adversely influenced by CRA’s unexplained conclusion (as per above) that making a second renunciation under s. 66(12.6) was not technically possible.

CRA’s decision was set aside and remitted for reconsideration.

Neal Armstrong. Summaries of Frontier Lithium Inc. v. Canada (Attorney General), 2026 FC 998 under s. 66(12.741) and Federal Courts Act, s. 18.1(2).