Archived - Backgrounder - Mineral Exploration Tax Credit for Flow-Through Share Investors
Flow-through shares allow resource companies to renounce or “flow through” tax expenses associated with their Canadian exploration activities to investors, who can deduct the expenses in calculating their own taxable income. This facilitates the raising of equity to fund exploration by enabling companies to issue shares at a premium. The Mineral Exploration Tax Credit is an additional benefit, available to individuals who invest in mining flow-through shares, equal to 15 per cent of specified mineral exploration expenses incurred in Canada and renounced to flow-through share investors.
The Government proposes to extend eligibility for the Mineral Exploration Tax Credit for an additional year, to flow-through share agreements entered into on or before March 31, 2016. Under the existing “look-back” rule, funds raised in one calendar year with the benefit of the credit can be spent on eligible exploration up to the end of the following calendar year. Therefore, for example, funds raised with the credit during the first three months of 2016 can support eligible exploration until the end of 2017.
All mineral exploration, as well as new mining and related processing activities that could follow from successful exploration efforts, can be associated with a variety of environmental impacts to soil, water and air and, as a result, could have an impact on the goals of the Federal Sustainable Development Strategy. All such activity, however, is subject to applicable federal and provincial environmental regulations, including project-specific environmental assessments where required.
It is estimated that the extension of the credit will result in a net reduction of federal revenues of $35 million over the 2015–16 to 2016–17 period.
 In the year a company issuing flow-through shares transfers eligible expenses to the shareholder, the individual shareholder is entitled to claim both a deduction for the expenses flowed through and the 15-per-cent Mineral Exploration Tax Credit. Once the credit is received upon the filing of the individual’s tax return in the following year, the deduction associated with the portion of the expense that was effectively "paid for" by the credit is reversed, resulting in an income inclusion for the individual in the following year.
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