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Flow-Through Financing 101

Frequently Asked Questions

What is a flow-through share?

Flow-through shares:

The Canadian Flow-Through Share tax regime was established in the 1970s to promote exploration investment in Canada. Resource issuers can “flow-through” or “renounce” the tax deductions associated with certain exploration expenditures conducted on Canadian resource properties to the first subscribers of these common shares, thereby incentivizing individual investors to finance early-stage mineral exploration and helping junior mineral exploration companies raise capital.

  • A Flow-Through Share (“FTS”) is a type of common share that permits the initial purchaser to claim a tax deduction equal to the amount invested.
  • The flow-through share regime allows public companies to transfer to investors certain exploration expenditures conducted on Canadian soil.
  • Flow-through share financing contributes over 65% of the funds raised on Canadian stock exchanges for exploration across the country, generating significant exploration activity within Canadian borders.

Source: PDAC – for more detailed analysis Visit the PDAC website

Who can issue flow-through shares?

Certain corporations in the mining and renewable energy and energy conservation sectors may issue Flow-Through Shares to help finance their exploration and project development activities (oil, gas and coal exploration and development activities were removed from the FTS regime effective March 31, 2023). The FTS 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 FTS 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.

Is there risk investing in a charity flow-through financing?

  • The Canadian Flow-Through Share tax regime has been part of the Canadian Income Tax Code since the 1970s.
  • The Canadian Revenue Agency (“CRA”) and Revenu Québec have issued Advance Tax Rulings confirming the tax consequences of Oberon’s Charity Flow-Through ("CFT") Financing model.
  • Neither the CRA or Revenu Québec has challenged Oberon’s CFT financings in the last 15 years with over 400 financings and thousands of client tax returns.
  • There exists a limited, but controlled risk that an issuer does not correctly spend and renounce qualifying Canadian Exploration Expenditures (“CEE”) or Canadian Development Expenditures (“CDE”). Oberon protects clients through an indemnity provided by the issuer and has never had a client lose the subscribed tax benefits.
  • There is no equity price risk for the donor or charity given the common shares are sold at closing. If the sale were not consummated the transaction would be canceled and subscription funds returned to the subscriber.

How much income is required to subscribe for Flow-Through Shares?

  • Depending on your province of residence, you may be subject to tax at a rate of 50% or higher when your income exceeds CAD$245,000. Acquiring flow-through shares is one potential tax minimization strategy. Flow-Through Share investments help you reduce your taxable income and thus reduce your tax liability.

What is AMT and how will it impact Charity Flow-Through Financings?

  • Alternative Minimum Tax (AMT) is a feature of the Canadian Income Tax Act that places a “floor” on the percentage of taxes that an individual filer must pay to the government, no matter how many deductions or credits the filer may otherwise claim.
  • Proposed amendments to the AMT regime for high-income individuals were introduced in the 2023 Federal Budget, effective for taxation years beginning on or after January 1, 2024. 
  • On August 4, 2023, draft legislative proposals to implement these AMT changes were released and various concerns were identified by stakeholders with respect to certain amendments during the consultation period.
  • In the April 16, 2024 Federal Budget, the Government reaffirmed their intentions to implement the proposed AMT changes (subject to certain adjustments) for tax years that begin on or after January 1, 2024. 
  • More specifically, one of the key modifications in respect of the proposed AMT changes, included in the 2024 Budget, was that the tax treatment of charitable donations be revised to allow individuals to claim 80% (instead of the previously proposed 50%) of the Charitable Donation Tax Credit when calculating AMT.
  • Broadly-speaking, the proposed amendments expand the AMT base by further limiting tax preference items, increase the basic exemption amount and increase the AMT rate, and extend eligibility for the general AMT exemption to additional types of trusts.

What is the Impact of the 2024 Federal Budget’s Change to the Capital Gain Inclusion Rate to Flow-Through Financings?

  • The 2024 Budget increased the capital gain inclusion rate from 50% to 66.67%, effective June 25, 2024 (up to $250,000 of annual gains for individuals will continue to benefit from the 50% inclusion rate). 
  • For corporations and trusts, the inclusion rate increased to 66.67% on all amounts. i.e., corporations and trusts will not benefit from the annual $250,000 individual limit to access the lower 50% inclusion rate.
  • The 2024 Budget states that the $250,000 annual threshold will not be prorated for individuals in 2024 and will only apply against capital gains realized on or after June 25, 2024.

Explore Next:

Resources for Issuers

The Flow-Through Share regime experiences changes and optimisations. Stay informed about the changing landscape, current events and available resources for resource issuers and philanthropists.

Charity Flow-Through Financing

Charity Flow-Through (“CFT”) is a structured financing product, unique to Canada, that reduces a philanthropist's after-tax cost of giving, while enabling greater access to capital for natural resource companies exploring and developing in Canada.