Canada: Could Flow-Through Shares Be Right For Me?

Last Updated: February 14 2018
Article by John MacFarlane

Every mining, oil and gas, and renewable energy company in Canada has been faced with the same dilemma during the early stages of their existence: How can they raise enough money from investors and entice them to purchase their stock without an established revenue stream?

The Canadian Government offers certain tax incentives and benefits for investors of these resource companies, specifically to encourage people to invest. These incentives and benefits are derived from what are commonly referred to as flow-through shares (FTSs).

What is a flow-through share?

A FTS is a share which permits a resource company to pass along its development and exploration expenses to an investor. Investors are then able to deduct these expenses from their personal income tax returns.

The theory behind FTSs is simple. Generally, when resource companies are in the development or exploration stage of their life cycle, they are not generating any revenue. Without any revenue, these expenses are of no immediate value to the company and would be pooled together to be carried forward to be used in a year where the company has taxable income. As an incentive for investors to fund these operations, which may likely not result in any revenues until a much later date, holders of FTSs are able to utilize what would otherwise be corporate deductions against personal income. It is a win-win situation – the corporation receives much needed capital to fund its operations and the investor receives a tax deduction for the amount it invests.

In addition to a tax deduction, investors may also receive a non-refundable Investment Tax Credit (ITC). This ITC will depend on the nature of the expenses renounced to the investor and is equal to 15% of the eligible expenses renounced. Depending on the province in which the expenses were incurred, the specific expenses and the type of investor, there may also be an additional provincial ITC.

FTSs – the specifics

Once a company's FTSs have been authorized, the resource company can renounce its development and exploration expenses, making them available for the investor to deduct.

There are two types of expenditures that can be renounced by a resource company. The first are Canadian Exploration Expenses (CEE), fully-deductible by an investor in the year they are renounced. The second are Canadian Development Expenses (CDE), which are deductible by investors at a 30 per cent declining-balance basis beginning in the year they are renounced.

The CEE or CDE that are renounced and claimed as a deduction by an investor cannot exceed the cost of the investor's original investment. Additionally, the adjusted cost basis (ACB) of an investor's investment will be reduced dollar for dollar by the amount of the expenses renounced to them. Finally, any ITC claimed by an investor will be considered taxable income for the following year.

For example, if you purchase $10,000 of FTSs in a particular year, you would be entitled to claim a deduction of $10,000 in your personal income tax return (deductible against all sources of income) and a Federal ITC of $1,500 (assume no provincial credit in this example). The ITC of $1,500 would be considered taxable income in the following year and you would pay tax on this benefit. The ACB of the investment would be reduced to $nil and any proceeds received on the eventual sale of the shares would result in a capital gain (taxable at 50%).

However, if the investor does not have a significant amount of taxable income from other sources, the deduction of the renounced CEE or CDE can result in the person being liable for Alternate Minimum Tax.

Is it worth investing in FTSs?

The main benefits of investing in FTSs are the tax savings from the write off of the investment over a short period of time, generally within the first year, and the corresponding ITC. For an investor in the highest marginal tax bracket, a FTS investment of $10,000, would result in roughly $6,000 of tax savings. This would reduce the ultimate cost of the investment from $10,000 down to $4,000. Ignoring the time value of money, as long as you thought you would be able to sell the shares down the road for more than $5,461, you would make money on the investment.

FTSs might be right for you if:

  • You are paying tax at the highest marginal tax bracket;
  • You are looking for immediate tax savings;
  • You have enough savings and a well-diversified portfolio to take on the associated riskier investment.

FTSs might not be the right investment for you if:

  • You are not in the highest marginal tax bracket;
  • You do not have any portfolio savings or investments;
  • You are risk adverse when it comes to investing.

Next steps?

Do you think FTSs might be the right fit for you? Reach out to both your investment advisor as well as your accountant. Your investment advisor will be able to confirm whether this type of investment would complement your existing portfolio, and your accountant would be able to quantify the potential tax savings.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

John MacFarlane
In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions