Flow-through shares (FTSs)
On July 10, 2020, the Government of Canada announced changes to protect jobs and safe operations of junior mining exploration and other flow-through share issuers, by extending the timelines for spending the capital they raise via flow-through shares by 12 months.
On December 16, 2020, the Department of Finance published the draft legislative proposals in a News release.
Certain corporations in the mining, oil and gas, and renewable energy and energy conservation sectors may issue FTSs to help finance their exploration and project development activities. The FTSs must be newly issued shares that have the attributes generally attached to common shares.
Junior resource corporations often have difficulty raising capital to finance their exploration and development activities. Moreover, many are in a non-taxable position and do not need to deduct their resource expenses. The FTS mechanism allows the issuer corporation to transfer the resource expenses to the investor. A junior resource corporation, in particular, benefits greatly from FTS financing.
The FTS program provides tax incentives to investors who acquire FTSs by allowing:
- deductions for resource expenses renounced by eligible corporations; and
- investment tax credits for individuals (excluding trusts) on resource expenses in the mining sector that qualify as flow-through mining expenditures.
The Canada Revenue Agency (CRA) reviews all FTS arrangements. Audits are carried out to monitor the program.
List of definitions related to flow-through shares.
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