Zentek Ltd. received a notice of reassessment from the Canada Revenue Agency for its 2019 financial year, following an audit of the flow‑through financing transactions that closed in December 2018 and December 2019 and generated $4.21 million in gross proceeds.
The reassessment reclassifies approximately $199,000 of expenses that did not meet the definition of Canadian Exploration Expenses, resulting in a Part XII.6 tax payable of $22,481.89 under section 211.91 of the Income Tax Act.
Zentek is contractually obligated to indemnify subscribers for tax attributable to disallowed renunciations, with a maximum aggregate liability of $427,000. The company will review the findings and respond within 20 business days.
This reassessment follows a prior CRA audit of the 2018 renunciations, which led to a reassessment of about $507,000 in expenses and a tax liability of $59,693, indicating ongoing scrutiny of Zentek’s flow‑through financing structure.
While the direct tax impact of $22,481.89 is modest relative to Zentek’s 2024 revenue of $872,495, the potential indemnification exposure could create a near‑term cash outflow if subscribers exercise their rights. The company’s Q3 2025 net sales fell to $6,204 from $15,692 in Q3 2024, reflecting broader challenges in its revenue mix.
Management stated it will review the findings and respond accordingly, underscoring its commitment to compliance and to honoring indemnification obligations.
The reassessment highlights the importance of compliance with Canadian tax rules for companies that rely on flow‑through financing to fund R&D activities. Investors should monitor Zentek’s cash flow and reserve management for potential impacts.
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